1
[G.R. No. 154499. February 27, 2004]
ALBERTO V. REYES, WILFREDO B. DOMO-ONG and HERMINIO C.
PRINCIPIO, petitioners, vs. RURAL BANK OF SAN MIGUEL
(BULACAN), INC., represented by HILARIO P. SORIANO,
President and Principal Stockholder, respondent.
RESOLUTION
Tinga, J.:
This deals with the Motion for Reconsideration of petitioners
Alberto V. Reyes and Wilfredo B. Domo-ong, both Bangko Sentral ng
Pilipinas (BSP) officials,[1] and the Motion for Partial Reconsideration of
respondent Rural Bank of San Miguel (Bulacan), Inc.
In the Decision[2] of March 14, 2003, this Court found Deputy
Governor Reyes and Director Domo-ong liable for violation of the
standards of professionalism prescribed by the Code of Conduct and
Ethical Standards for Public Officials and Employees (Republic Act No.
6713) in that they used the distressed financial condition of respondent
Rural Bank of San Miguel (Bulacan), Inc. (RBSMI) as the subject of a
case study in one of the BSP seminars and did the brokering of the sale
of RBSMI. The Court modified the Decision of the Court of Appeals in CA-
GR SP No. 60184[3] by reducing the penalty imposed by the appellate
court from a fine equivalent to six months salary to a fine of two months
salary for Reyes and one month salary for Domo-ong.
In the Decision, the Court exonerated petitioner Herminio C.
Principio[4] of the administrative charges. The exoneration is the subject
of RBSMIs Motion For Partial Reconsideration.
The Motion for Reconsideration of Reyes and Domo-ong is
anchored on the following grounds: (1) it was not under their auspices
that the seminar which used training materials containing two case
studies on RBSMIs financial distress was conducted but under that of
another department and other officials of BSP; and, (2) they did not do
any act which constituted brokering of the sale of RBSMI or deviated
from the standards of professionalism.
A brief revisit of the operative milieu is warranted to gain the
needed perspective.
In a letter dated May 19, 1999, addressed to then BSP Governor
Singson, RBSMI charged the petitioners with violation of Republic Act
No. 6713 (Code of Conduct and Ethical Standards for Public Officials and
Employees). The Monetary Board (MB) of the BSP created an Ad
Hoc Committee to investigate the matter.
The ensuing investigation disclosed that sometime in September
1996, RBSMI, which had a history of major violations/exceptions dating
back to 1995, underwent periodic examination by the BSP. The
examination team headed by Principio noted 20 serious
exceptions/violations and deficiencies of RBSMI.[5]
Through Resolution No. 96, the MB required RBSMI to submit
within 15 days a written explanation with respect to the findings of the
examiner. It also directed the Department of Rural Banks (DRB), to
verify, monitor and report to the Deputy Governor, Supervision and
Examination Sector (SES) on the findings/exceptions noted, until the
same shall have been corrected.
As directed by the MB, another examination team conducted a
special examination on RBSMI. RBSMI President Hilario Soriano claimed
that he was pressured into issuing a memorandum to the bank
employees authorizing the team to review the banks accounting and
internal control system.
Soriano also alleged that sometime in March 1997, Reyes started
urging him to consider selling the bank. He specified that on May 28,
1997, Reyes introduced him through telephone to Mr. Exequiel Villacorta,
President and Chief Executive Officer of the TA Bank. They agreed to
meet on the following day. In his Affidavit,[6] Villacorta confirmed that he
and Soriano indeed met but the meeting never got past the exploratory
stage since he (Villacorta) immediately expressed disinterest because
Soriano wanted to sell all his equity shares while he was merely
contemplating a possible buy-in.
Soriano further alleged that when the talks with Villacorta failed,
Reyes asked him whether he wanted to meet another buyer, to which he
answered in the affirmative. Thereafter, Reyes introduced him by
telephone to Benjamin P. Castillo of the Export and Industry Bank (EIB),
whom he met on June 26, 1997. No negotiation took place because
Soriano desired a total sale while EIB merely desired a joint venture
arrangement or a buy-in to allow EIB to gain control of RBSMI.
Meanwhile, on June 13, 1997, the MB approved Resolution No.
724[7] ordering RBSMI to correct the major exceptions noted within 30
days from receipt of the advice, and to remit to the BSP the amount
of P2,538,483.00 as fines and penalties for incurring deficiencies in
reserves against deposit liabilities.
On July 21, 1997, Soriano submitted RBSMIs answers to the BSP
exceptions/findings mentioned. He stated that the actions taken or to be
taken by the bank (RBSMI) were deliberated and ratified by the Board of
Directors in its regular meeting held on July 9, 1997. Among the board
approved actions was the banks request addressed to Domo-ong for BSP
to debit the demand deposit of the bank in the amount of P2,538,483.00
representing the payment of fines and penalties.
More than a year after, however, the RBSMI asked for a
reconsideration of MB Resolution No. 724 insofar as the imposition of
fine amounting to P2,538,483.00. On January 21, 1999, the MB
adopted Resolution No. 71,[8] authorizing the conditional reversal of sixty
percent (60%) of the penalty pending resolution of the dispute on the
findings on reserve deficiency.Subsequently, on April 7, 1999, the MB
approved the interim reversal of the entire amount of the penalty
pending the outcome of the study on the legal and factual basis for the
imposition of the penalty.
The above incidents, particularly the alleged brokering by Reyes
and the petitioners unsupported recommendation to impose a penalty
of P2,538,483.00 for legal reserve deficiency, prompted the respondent
to file the letter-complaint charging the petitioners with
unprofessionalism.
The Motion for Reconsideration bid of Reyes and Domo-ong is
meritorious.
In pinning liability on Reyes and Domo-ong for the seminar which
used the rural bank as a case study, the court made this
ratiocination, viz:
(W)hile there was indeed no evidence showing that either petitioner
Reyes or petitioner Domo-ong distributed or used the materials, the very
fact that the seminar was conducted under their auspices is enough to
make them liable to a certain extent. Petitioner Reyes, as Head of the
BSP Supervision and Examination Sector, and petitioner Domo-ong, as
Director of the BSP Department of Rural Banks, should have
exercised their power of control and supervision so that the incident
could have been prevented or at the very least remedied.
(Emphasis supplied)
Plainly, conclusion on petitioners culpability is grounded, not on an
established fact but on a mere inference that the seminar was conducted
under their auspices. Indeed, the pronouncement on the petitioners role
is evidently conjectural and evaluation of the extent of their responsibility
admittedly uncertain.
It is conceded that there was no evidence that the seminar was
conducted under petitioners patronage. And it was assumed, as indeed
there was absolutely paucity of proof, that they exercised supervision
and control over the persons responsible in organizing the seminar. On
the contrary, as shown in the Motion For Reconsideration, it was the
Bangko Sentral ng Pilipinas Institute (BSPI), an office separate and
independent from the SES which is directly under the control and
supervision of another Deputy Governor, that for the Resource
Management Sector (RMS)[9] which is charged with conducting seminars
and lectures for the BSP, including the seminar involved in this case.
In its Comment,[10] RBSMI argues that since information on the
state of its finances found its way as a training material of RMS, the
event could have transpired only because the SES permitted it. Even if
the subordinates of petitioners were the source of information, RBSMI
further claims in ostensible reference to the principle of command
responsibility, petitioners could be held liable for negligence.
It is noteworthy again that petitioners alleged role in the
disclosure of information is not anchored on any concrete piece of
evidence. That explains the RBSMIs effort to cast liability vicariously on
the petitioners by a superficial resort to the principle of command
responsibility which this Court did not reject. But neither the principle
itself which is an accepted notion in military or police structural dynamics
or its counterpart of respondent superior in the law on quasi-
delicts[11] would be relevant in this case, involving as it does the actual

performance in office of the petitioners and given the fact that
petitioners are high ranking officers of the countrys central monetary
authority. Indeed, as such officers, petitioners cannot be expected to
monitor the activities of their subalterns. In Arias v. Sandiganbayan,
[12]
this Court held that all heads of offices have to rely to a reasonable
extent on the good faith of their subordinates. The case specifically
involved the liability of the head of office in the preparation of bids,
purchase of supplies and contract negotiations done by his
subordinates. In the same fashion, petitioners in this case owing to their
high ranks cannot be expected to acquaint themselves with such
minutiae as the flow of files and documents which leave their
desks. Myriad details such as those are, by office practice, left to
subalterns and minor employees. Delegation of function is part of sound
management.
From another perspective, the negligence of the subordinate
cannot be ascribed to his superior in the absence of evidence of the
latters own negligence. Indeed, the negligence of the subordinate is not
tantamount to negligence of the superior official so the Court ruled in a
case[13] where the mandated responsibilities of the superior do not
include actual monitoring of projects. In another case,[14] this Court
rejected the principle of command responsibility although the case
involved a provincial constabulary commander, aptly noting that there
was neither allegation nor proof that he had been in any way guilty of
fault or negligence in connection with the unlawful raid and arrest
effected by his subordinates.
The immunity of public officers from liability for the non-
feasances, negligence or omissions of duty of their official subordinates
and even for the latters misfeasances or positive wrongs rests, according
to Mechem, upon obvious considerations of public policy, the necessities
of the public service and the perplexities and embarrassments of a
contrary doctrine.[15] These official subordinates, he notes further, are
themselves public officers though of an inferior grade, and therefore
directly liable in the cases in which any public officer is liable, for their
own misdeeds or defaults.[16]
Significantly, Mechems disquisition provides the mooring of the
Administrative Code of 1987 which provides that a head of a department
or a superior officer shall not be civilly liable for the wrongful acts,
omissions of duty, negligence, or misfeasance of his subordinates, unless
he has actually authorized by written order the specific act or misconduct
complained of.[17]
Now, the label of unprofessionalism bestowed by the Court on the
petitioners at the instance of RBSMI.
In the assailed Decision, the Court categorized Reyes telephone
introduction of officials of other banks to RBSMIs President in connection
with the latters expressed desire to sell the bank as brokering which in
turn constitutes, according to the Court, violation of the standards of
professionalism. The standards are set forth in Section 4 (A) (b) of
Republic Act 6713, as follows:
Sec. 4. Norms of Conduct of Public Officials and Employees. (A) Every
public official and employee shall observe the following as standards of
personal conduct in the discharge and execution of official duties:
...
(b) Professionalism. Public officials and employees shall perform and
discharge their duties with the highest degree of excellence,
professionalism, intelligence and skill. They shall enter public service with
utmost devotion and dedication to duty. They shall endeavor to
discourage wrong perceptions of their roles as dispensers or peddlers of
undue patronage.
The Court equates brokering with unprofessionalism. According
to Websters Third New International Dictionary, professionalism means
the conduct, aims, or qualities that characterize or mark a
profession. Any standard thesaurus defines a professional as a person
who engages in an activity with great competence. Indeed, to call a
person a professional is to describe him as competent, efficient,
experienced, proficient or polished.
The crucial question, therefore, is whether Reyes conducted
himself in an unprofessional manner in doing the acts imputed to him.
The Court rules in the negative.
2
In the first place, the acts of Reyes do not constitute
brokering. Case law[18] defines a broker as one who is engaged, for
others, on a commission, negotiating contracts relative to property
with the custody of which he has no concern; the negotiator between
other parties, never acting in his own name but in the name of those
who employed him. . . . a broker is one whose occupation is to bring the
parties together, in matters of trade, commerce or navigation. According
to Bouviers Law Dictionary, brokerage refers to the trade or occupation
of a broker; the commissions paid to a broker for his services, while
brokers are those who are engaged for others on the negotiation of
contracts relative to property, with the custody of which they have no
concern.[19]
Thus, the word brokering clearly indicates the performance of
certain acts for monetary consideration or compensation. To give it
another definition such as that imputed by RBSMI to the acts of Reyes is
to distort the accepted jurisprudential meaning of the term.
From the evidence, all that Reyes did was to introduce RBSMIs
President to the President of TA Bank and EIB. Nothing more. There was
not even a hint that he was motivated by monetary consideration or
swayed by any personal interest in doing what he did.
On his part, Soriano who is RBSMIs President himself admitted
that the talks with Villacorta and Castillo never got past the exploratory
stage because the two wanted a buy-in while he was for a total sell-
out. This is an indelible indication that Reyes was not personally involved
in the transaction. If he were, he would at least have an inkling of the
plans of Villacorta and Castillo; otherwise, he would not have wasted his
time introducing them to Soriano.
Indeed, RBSMI miserably failed to establish that Reyes had
breached the standard of professional conduct required of a public
servant. It appears to the Court that in keeping with the standards of
professionalism and heeding the mandate of his position, he made the
telephone introductions for no other purpose but to pave the way for a
possible consolidation or merger of RBSMI with interested banks. As this
Court found in its Decision, it is indeed the policy of the BSP to promote
mergers and consolidations by providing incentives to banks that would
undergo such corporate combinations. [20] To effectively implement the
policy, it was necessary that the banks be advised and assisted by a
person knowledgeable about the transactions like Reyes. The benefits
which may ultimately arise out of any preliminary facilitation step such as
what Reyes undertook will not accrue to the facilitator but to the parties
to the transaction themselves and, of course, the institution whose policy
initiative is being carried out.
All told, there is neither legal nor factual support for holding Reyes
and Domo-ong liable.
As to the motion for partial reconsideration filed by RBSMI, it is
argued that Principio should be administratively penalized for his undue
haste in submitting his report to the MB, in making an unsupported
recommendation for imposition of penalties for legal reserve deficiencies,
and for taking charge of the examinations of RBSMI three consecutive
times. RBSMIs arguments are not new, they having been previously
presented to and squarely ruled upon by the Court.
In closing, it cannot be overemphasized that the BSP is an
independent body corporate bestowed under its charter [21] with fiscal and
administrative autonomy. As such, its officials should be granted a
certain degree of flexibility in the performance of their duties and
provided insulation from interference and vexatious suits, especially
when moves of the kind are resorted to as counterfoil to the exercise of
their regulatory mandate. Elsewise, the institutional independence and
autonomy of the BSP as the central mandatory authority would be
rendered illusory.
IN VIEW OF THE FOREGOING, the Court RESOLVES to GRANT
the Motion for Reconsideration of the petitioners Deputy Governor
Alberto V. Reyes and Director Wilfredo B. Domo-ong. The Decision dated
March 14, 2003 is SET ASIDE and another entered, DISMISSING the
administrative complaint and EXONERATING all the petitioners.
The Motion for Partial Reconsideration of the respondent Rural Bank of
San Miguel (Bulacan), Inc. is DENIED.
SO ORDERED.

G.R. No. 168859 June 30, 2009
UNITED COCONUT PLANTERS BANK, JERONIMO U. KILAYKO,
LORENZO V. TAN, ENRIQUE L. GANA, JAIME W. JACINTO and
EMILY R. LAZARO,
Petitioners, -versus-
E. GANZON, INC.,
Respondent.
DECISION
CHICO-NAZARIO, J.:
These are two consolidated[1] Petitions for Review on Certiorari under
Rule 45 of the 1997 Revised Rules of Civil Procedure.
United Coconut Planters Bank (UCPB) is a universal bank duly
organized and existing under Philippine Laws. In G.R. No.
168859, UCPB and its corporate officers, i.e., Jeronimo U. Kilayko,
Lorenzo V. Tan, Enrique L. Gana, Jaime W. Jacinto and Emily R. Lazaro
(UCPB, et al.) seek the reversal and setting aside of the Decision [2] dated
14 October 2004 and Resolution [3] dated 7 July 2005 of the Court of
Appeals in CA-G.R. SP No. 81385 and the affirmation, instead, of the
letter-decision[4] dated 16 September 2003 of the Monetary Board of
the Bangko Sentral ng Pilipinas (BSP). The Court of Appeals, in its
assailed Decision, set aside the aforesaid letter-decision of the BSP
Monetary Board and remanded the case to the latter for further
proceedings; and in its questioned Resolution, denied for lack of merit
the Motion for Reconsideration of UCPB, et al., as well as the Partial
Motion for Reconsideration of E. Ganzon, Inc. (EGI).
On the other hand, EGI is a corporation duly organized and
existing under Philippine laws and engaged in real estate construction
and development business. In G.R. No. 168897, EGI prays for this
Court to review the same Decision dated 14 October 2004 and
Resolution dated 7 July 2005 of the Court of Appeals in CA-G.R. SP No.
81385, and to order the appellate court to (1) act on its findings in the
case instead of remanding the same to the BSP Monetary Board for
further proceedings; (2) direct the BSP Monetary Board to impose the
applicable administrative sanctions upon UCPB, et al.; and (3) to amend
its assailed Decision and Resolution by deleting therefrom the statements
requiring the BSP Monetary Board to scrutinize and dig deeper into the
acts of UCPB, et al., and to determine if, indeed, there were irregular and
unsound practices in its business dealings with EGI.
The factual antecedents of these consolidated petitions are as follows:
Beginning 1995 to 1998, EGI availed itself of credit facilities from UCPB
to finance its business expansion. To secure said credit facilities, EGI
mortgaged to UCPB its condominium unit inventories in EGI Rufino Plaza,
located at the intersection of Buendia and Taft Avenues, Manila.
Initially, EGI was able to make periodic amortization payments
of its loans to UCPB. When the negative effects of the Asian economic
crisis on the property development sector finally caught up with the
corporation in the middle of 1998, EGI started defaulting in its payment
of amortizations, thus, making all of its obligations due and
demandable.Subsequently, EGI was declared in default by UCPB in its
letters dated 2 October 1998[5] and 16 February 1999.[6] Thereafter,
UCPB stopped sending EGI monthly statements of its accounts.
In 1999, EGI and UCPB explored the possibility of using the mortgaged
condominium unit inventories of EGI in EGI Rufino Plaza as payment for
the loans of EGI to UCPB.Upon agreeing on the valuation of said
mortgaged properties, EGI and UCPB entered into a Memorandum of
Agreement (MOA)[7] on 28 December 1998 in settlement of the loans of
EGI from UCPB. Based on this MOA, the outstanding loan obligations of
EGI with UCPB amounted to P915,838,822.50, inclusive of all interest,
charges and fees.UCPB, through its corporate officers, assured EGI that
the said amount already represented the total loan obligations of EGI to
UCPB.
3
On 18 January 2000, EGI and UCPB executed an Amendment
of Agreement[8] to reflect the true and correct valuation of the properties
of EGI listed in the MOA that would be transferred to UCPB in settlement
of the total loan obligations of the former with the latter. The properties
of EGI to be used in paying for its debt with UCPB were valued
at P904,491,052.00.
According to the MOA and its amendments, titles to the properties of EGI
shall be transferred to UCPB by the following modes: (1) foreclosure of
mortgage; (2) dacion en pago; (3) creation of a holding company; and
(4) use of other alternatives as may be deemed appropriate by UCPB.
UCPB proceeded to foreclose some of the properties of EGI listed in the
MOA. Per the Certificate of Sale [9] dated 13 April 2000, the foreclosure
proceeds of said properties amounted only to P723,592,000.00, less
than the value of the properties of EGI stipulated in its amended MOA
with UCPB.
UCPB applied the entire foreclosure proceeds of P723,592,000.00 to the
principal amount of the loan obligations of EGI, pursuant to BSP Circular
No. 239,[10] which provided that partial property payments shall first be
applied to the principal. After deducting the said amount from the total
loan obligations of EGI, there was still an unpaid balance
of P192,246,822.50.
On 8 May 2001, some of the other properties of EGI at EGI Rufino Plaza,
valued at P166,127,369.50, were transferred by way of dacion en
pago to UCPB. However, during the signing of the transaction papers for
the dacion en pago, EGI Senior Vice-President, Architect Grace S. Layug
(Layug), noticed that said papers stated that the remaining loan balance
of EGI in the amount of P192,246,822.50 had increased
to P226,963,905.50. The increase was allegedly due to the addition of
the transaction costs amounting to P34,717,083.00. EGI complained to
UCPB about the increase, yet UCPB did not take any action on the
matter.
This prompted EGI President Engineer Eulalio Ganzon (Ganzon) and
Senior Vice-President Layug to review their files to verify the figures on
the loan obligations of EGI as computed by UCPB. In the process, they
discovered the UCPB Internal Memorandum dated 22 February 2001,
[11]
signed by UCPB corporate officers. The said Internal Memorandum
presented two columns, one with the heading ACTUAL and the other
DISCLOSED TO EGI. The figures in the two columns were
conflicting. The figures in the DISCLOSED TO EGI column computed the
unpaid balance of the loan obligations of EGI to be P226,967,194.80,
the amount which UCPB actually made known to and demanded from
EGI. The figures in the ACTUAL column calculated the remaining loan
obligations of EGI to be only P146,849,412.58.
Consequently, EGI wrote UCPB a letter dated 21 May 2001, [12] which
included, among other demands, the refund by UCPB to EGI of the over-
payment of P83,000,000.00;[13]return to EGI of all the remaining Transfer
Certificates of Title (TCTs)/Condominium Certificates of Title (CCTs) in
the possession of UCPB; and cost of damage to EGI for the delay in the
release of its certificates of title.
In response, UCPB explained[14] that the ACTUAL column in its Internal
Memorandum dated 22 February 2001 contained the same amounts
reflected or recorded in its financial statements, in accordance with the
Manual of Accounts for Banks, Manual of Regulations for Banks [15] and
BSP Circular No. 202,[16] Series of 1999. In contrast, the DISCLOSED TO
EGI column showed the total amount still due from EGI, including the
total principal, interests, transaction and other costs after the
foreclosure, whether reflected in the financial books of UCPB or
not. Further, UCPB maintained that the difference in the figures in the
two columns was because BSP Circular No. 202 and Section X305.4 of
the Manual of Regulations for Bank disallowed banks from accruing in its
books interest on loans which had become non-performing.
Despite the explanation of UCPB, EGI insisted that the figures appearing
in the ACTUAL column of the formers Internal Memorandum dated 22

February 2001 revealed the true and actual amount of its loan
obligations to UCPB, P146,849,412.58.
EGI Senior Vice-President Layug met with UCPB Vice-
President, Jaime W. Jacinto (Jacinto) to discuss the demand of EGI for
the return of its overpayment. UCPB Vice-President Jacinto, however,
refused to concede that UCPB had any obligation to make a refund to
EGI and, instead, insisted that EGI Senior Vice-President Layug disclose
who gave her a copy of the UCPB Internal Memorandum dated 22
February 2001.
Based on the possession by EGI of the UCPB Internal Memorandum
dated 22 February 2001, UCPB filed a criminal case for theft and/or
discovery of secrets against EGI President Ganzon and Senior Vice-
President Layug, but the said case was dismissed.[17]
On 5 November 2002, EGI, also on the basis of the UCPB
Internal Memorandum dated 22 February 2001, EGI filed with the BSP an
administrative complaint[18] against UCPB, et al., for violation of Sections
36[19] and 37,[20] Article IV of Republic Act No. 7653,[21] in relation to
Section 55.1(a)[22] of Republic Act No. 8791;[23] and for the commission of
irregularities and conducting business in an unsafe or unsound manner.
In a letter-decision[24] dated 16 September 2003, the BSP Monetary
Board dismissed the administrative complaint of EGI, holding as follows:
Please be informed that the Monetary Board decided to
dismiss the complaint based on the evaluation
conducted by the Supervision and Examination
Department I and the Office of the General Counsel
and Legal Services to the effect that:
1. UCPB computed interest on the loans based on BSP rules
and regulations which prohibit banks from accruing
interest on loans that have become non-performing
(BSP Circular No. 202). This is different from
interest which may have run and accrued based on
the promissory notes/loan documents from the
date of default up to settlement date.
2. Fair market value of assets to be foreclosed is
different from the bid price submitted during foreclosure and
there is no statutory obligation for the latter to be equivalent
to the former.
3. Regarding the alleged P145,163,000.00 fabricated loan,
the documents showed that there were the EGI Board
Resolution to borrow, promissory note signed by Mr. Eulalio
Ganzon, and Loan Agreement stating that the proceeds shall
be used to pay outstanding availments and interest servicing.
4. There is no finding by Supervision and
Examination Department I on the alleged double charging
and/or padding of transaction costs.[25]
EGI filed a Motion for Reconsideration and a Supplemental Motion for
Reconsideration of the aforequoted letter-decision of the BSP Monetary
Board. The BSP Monetary Board denied both motions in its
letter[26] dated 8 December 2003 as there was no sufficient basis to grant
the same.
EGI then filed a Petition for Review under Rule 43 of the 1997 Revised
Rules of Civil Procedure with the Court of Appeals raising the sole issue
of whether the Bangko Sentral ng Pilipinas erred in dismissing the
administrative complaint filed by EGI against UCPB, et al. The case was
docketed as CA-G.R. SP No. 81385.
On 14 October 2004, the Court of Appeals rendered its assailed Decision
granting the Petition for Review of EGI, thus, setting aside the BSP
letter-decision dated 16 September 2003 and remanding the case to the
BSP Monetary Board for further proceedings.
4
UCPB, et al., moved for the reconsideration of the 14 October
2004 Decision of the appellate court, praying for a new judgment
dismissing the appeal of EGI for lack of jurisdiction and/or lack of
merit. EGI also filed a Partial Motion for Reconsideration of the same
Court of Appeals Decision, with the prayer that the appellate court,
instead of still remanding the case to the BSP Monetary Board for further
proceedings, already direct the latter to impose the applicable
administrative sanctions upon UCPB, et al.,.
In a Resolution dated 7 July 2005, the Court of Appeals denied for lack
of merit both the Motion for Reconsideration of UCPB, et al. and the
Motion for Partial Reconsideration of EGI.
G.R. No. 168859
Aggrieved by the 14 October 2004 Decision and 7 July 2005 Resolution
of the Court of Appeals, UCPB, et al. comes before this Court, via a
Petition for Review on Certiorariunder Rule 45 of the 1997 Revised Rules
of Civil Procedure, based on the following assignment of errors:
I. THE HONORABLE COURT OF
APPEALS ACTED WITHOUT
JURISDICTION AND GRAVELY ERRED IN
HOLDING THAT IT HAS APPELLATE
JURISDICTION OVER DECISIONS OF
THE BSP/MONETARY BOARD.
II. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN HOLDING
THAT THE BANGKO SENTRAL
SUMMARILY DISMISSED THE
COMPLAINT OF [EGI].
III. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN
DISREGARDING THE FINDINGS OF
FACT OF THE BANGKO SENTRAL AND
IN HOLDING THAT [UCPB, et al.]
COMMITTED IRREGULAR AND
UNSOUND BANKING PRACTICES IN THE
SUBJECT TRANSACTIONS.[27]
The Petition is docketed as G.R. No. 168859.
UCPB, et al., aver that the Court of Appeals has no appellate jurisdiction
over decisions, orders and/or resolutions of the BSP Monetary Board on
administrative matters. The BSP Monetary Board is not among the quasi-
judicial agencies enumerated under Rule 43 of the 1997 Revised Rules of
Civil Procedure, over which the Court of Appeals has appellate
jurisdiction. Further, there is nothing in Republic Act No. 7653 or in
Republic Act No. 8791 which explicitly allows an appeal of the decisions
or orders of the BSP Monetary Board to the Court of
Appeals. Resultantly, the Court of Appeals has no power to review, much
less set aside, the findings of fact of the BSP Monetary Board as
contained in its letter-decision dated 16 September 2003.
UCPB, et al. also claim that, contrary to the ruling of the Court of
Appeals, the letter-decision dated 16 September 2003 of the BSP
Monetary Board plainly reveals that the administrative complaint of EGI
against UCPB, et al. was not summarily dismissed. The charges of EGI
against UCPB, et al. was resolved only after the BSP Monetary Board
thoroughly reviewed pertinent bank records and studied the arguments
raised by EGI in its complaint and Motion for Partial Reconsideration. In
its letter-decision dated 16 September 2003, the BSP Monetary Board
stated in no uncertain terms that the dismissal of the complaint of EGI
was based on the evaluation conducted by its Supervision and
Examination Department I and the Office of the General Counsel and
Legal Services. Also, in its letter dated 8 December 2003, the BSP
Monetary Board denied the Motion for Reconsideration and Supplemental
Motion for Reconsideration of EGI because the latter did not present any

new evidence in support of its motions. Hence, there is no basis for the
claim of EGI that the BSP Monetary Board overlooked and completely
ignored its accusations of irregular and unsound banking practice against
UCPB, et al.
Finally, UCPB, et al., maintain that the findings of fact of administrative
bodies like the BSP Monetary Board are accorded great respect, if not
finality, especially if supported by substantial evidence. Such findings are
to be respected by the courts, especially in the absence of grave abuse
of discretion or grave errors by the BSP Monetary Board. No other office,
much less an appellate tribunal, can substitute its own findings of fact
over that of the concerned administrative agency in view of the expertise
and specialized knowledge acquired by it on matters falling within its
areas of concern. UCPB, et al. insist that it is the BSP which has the
necessary expertise to draft guidelines for the evaluation of the
performance and conduct of banks. Thus, the Court of Appeals
committed grave error in disregarding the findings of fact of the BSP
Monetary Board which justified the latters dismissal of the administrative
complaint of EGI against UCPB, et al.
The issue of jurisdiction of the Court of Appeals over appeals of
decisions, orders and/or resolutions of the BSP Monetary Board on
administrative matters must first be resolved, before the other issues
raised herein by UCPB, et al.
Truly, there is nothing in Republic Act No. 7653 or in Republic
Act No. 8791 which explicitly allows an appeal of the decisions of the BSP
Monetary Board to the Court of Appeals. However, this shall not mean
that said decisions are beyond judicial review.
Section 9(3) of Batas Pambansa Blg. 129, otherwise known as
The Judiciary Reorganization Act of 1980, as amended, reads:
SEC. 9. Jurisdiction. The Court of
Appeals shall exercise:
xxxx
(3) Exclusive appellate
jurisdiction over all final judgments, decisions,
resolutions, orders or awards of Regional Trial
Courts and quasi-judicial agencies,
instrumentalities, boards or commissions,
including the Securities and Exchange Commission,
the Social Security Commission, the Employees
Compensation Commission and the Civil Service
Commission, exceptthose falling within the
appellate jurisdiction of the Supreme Court in
accordance with the Constitution, the Labor Code
of the Philippines under Presidential Decree No.
442, as amended, the provisions of this Act, and of
subparagraph (1) of the third paragraph and
subparagraph 4 of the fourth paragraph of Section
17 of the Judiciary Act of 1948. (Emphasis ours.)
In accordance with the afore-quoted provision, Rule 43 of the
1997 Revised Rules of Civil Procedure, on Appeals from the Court of Tax
Appeals and Quasi-Judicial Agencies to the Court of Appeals, defines its
scope as follows:
SECTION 1. Scope. - This Rule shall apply to
appeals from judgments or final orders of the
Court of Tax Appeals and from awards,
judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in
the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social
Security Commission, Civil Aeronautics Board,
Bureau of Patents, Trademarks and Technology
5
Transfer, National Electrification Administration,
Energy Regulatory Board, National
Telecommunications Commission, Department of
Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic
Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and
voluntary arbitrators authorized by law. (Emphasis
ours.)
A perusal of Section 9(3) of Batas Pambansa Blg. 129, as amended, and
Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure reveals
that the BSP Monetary Board is not included among the quasi-judicial
agencies explicitly named therein, whose final judgments, orders,
resolutions or awards are appealable to the Court of Appeals. Such
omission, however, does not necessarily mean that the Court of Appeals
has no appellate jurisdiction over the judgments, orders, resolutions or
awards of the BSP Monetary Board.
It bears stressing that Section 9(3) of Batas Pambansa Blg.
129, as amended, on the appellate jurisdiction of the Court of Appeals,
generally refers to quasi-judicial agencies, instrumentalities, boards, or
commissions. The use of the word including in the said provision, prior to
the naming of several quasi-judicial agencies, necessarily conveys the
very idea of non-exclusivity of the enumeration. The principle
of expressio unius est exclusio alterius does not apply where other
circumstances indicate that the enumeration was not intended to be
exclusive, or where the enumeration is by way of example only. [28]
Similarly, Section 1, Rule 43 of the 1997 Revised Rules of Civil
Procedure merely mentions several quasi-judicial agencies without
exclusivity in its phraseology.[29]The enumeration of the agencies
therein mentioned is not exclusive.[30] The introductory phrase [a]mong
these agencies are preceding the enumeration of specific quasi-judicial
agencies only highlights the fact that the list is not meant to be exclusive
or conclusive. Further, the overture stresses and acknowledges
the existence of other quasi-judicial agencies not included in the
enumeration but should be deemed included.[31]
A quasi-judicial agency or body is an organ of government
other than a court and other than a legislature, which affects the rights
of private parties through either adjudication or rule-making. [32] The very
definition of an administrative agency includes its being vested with
quasi-judicial powers. The ever increasing variety of powers and
functions given to administrative agencies recognizes the need for the
active intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies which cannot
possibly be handled by regular courts. [33] A "quasi-judicial function" is a
term which applies to the action, discretion, etc., of public administrative
officers or bodies, who are required to investigate facts, or ascertain the
existence of facts, hold hearings, and draw conclusions from them, as a
basis for their official action and to exercise discretion of a judicial
nature.[34]
Undoubtedly, the BSP Monetary Board is a quasi-judicial
agency exercising quasi-judicial powers or functions. As aptly observed
by the Court of Appeals, the BSP Monetary Board is an independent
central monetary authority and a body corporate with fiscal and
administrative autonomy, mandated to provide policy directions in the
areas of money, banking and credit. [35] It has power to issue subpoena,
to sue for contempt those refusing to obey the subpoena without
justifiable reason,[36] to administer oaths and compel presentation of
books, records and others, needed in its examination, [37] to impose fines
and other sanctions and to issue cease and desist order. [38] Section 37 of
Republic Act No. 7653,[39] in particular, explicitly provides that the BSP
Monetary Board shall exercise its discretion in determining whether
administrative sanctions should be imposed on banks and quasi-banks,
which necessarily implies that the BSP Monetary Board must conduct
some form of investigation or hearing regarding the same.

Having established that the BSP Monetary Board is indeed a
quasi-judicial body exercising quasi-judicial functions; then as such, it is
one of those quasi-judicial agencies, though not specifically mentioned in
Section 9(3) of Batas Pambansa Blg. 129, as amended, and Section 1,
Rule 43 of the 1997 Revised Rules of Civil Procedure, are deemed
included therein. Therefore, the Court of Appeals has appellate
jurisdiction over final judgments, orders, resolutions or awards of the
BSP Monetary Board on administrative complaints against banks and
quasi-banks, which the former acquires through the filing by the
aggrieved party of a Petition for Review under Rule 43 of the 1997
Revised Rules of Civil Procedure.
As a futile effort of UCPB, et al. to convince this Court that the
Court of Appeals has no appellate jurisdiction over the final judgments,
orders, resolutions or awards of the BSP Monetary Board, it cited Salud
v. Central Bank of the Philippines.[40]
The invocation of UCPB, et al. of Salud is evidently misplaced.
The present case involves a decision of the BSP Monetary
Board as regards an administrative complaint against a bank and its
corporate officers for the alleged violation of Sections 36 and 37, Article
IV of Republic Act No. 7653, in relation to Section 55.1(a)
of Republic Act No. 8791, and for the commission of irregularity
and unsafe or unsound banking practice. There is nothing in the
aforesaid laws which state that the final judgments, orders, resolutions
or awards of the BSP Monetary Board on administrative complaints
against banks or quasi-banks shall be final and executory and beyond the
subject of judicial review. Without being explicitly excepted or exempted,
the final judgments, orders, resolutions or awards of the BSP Monetary
Board are among those appealable to the Court of Appeals by way of
Petition for Review, as provided in Section 9(3) of Batas Pambansa Blg.
129, as amended, and Section 1, Rule 43 of the 1997 Revised Rules of
Civil Procedure.
Although in Salud, this Court declared that the Intermediate
Appellate Court (now Court of Appeals) has no appellate jurisdiction over
resolutions or orders of the Monetary Board of the Central Bank of the
Philippines (CBP, now BSP), because no law prescribes any mode of
appeal therefrom, the factual settings of the said case are totally
different from the one presently before us. Salud involved a resolution
issued by the Monetary Board, pursuant to Section 29 of Republic Act
No. 265, otherwise known as the old Central Bank Act, forbidding
banking institutions to do business on account of a "condition of
insolvency" or because "its continuance in business would involve
probable loss to depositors or creditors;" or appointing a receiver to take
charge of the assets and liabilities of the bank; or determining whether
the banking institutions should be rehabilitated or liquidated, and if in the
latter case, appointing a liquidator towards this end. The said Section 29
of the old Central Bank Act was explicit that the determination by the
Monetary Board of whether a banking institution is insolvent, or should
be rehabilitated or liquidated, is final and executory. However,
said determination could be set aside by the trial court if there was
convincing proof that the Monetary Board acted arbitrarily or in bad
faith. Under the circumstances obtaining in Salud, it is apparent
that our ruling therein is limited to cases of insolvency, and not
to all cases cognizable by the Monetary Board.
At any rate, under the new law, i.e., Section 30 of Republic
Act No. 7653, otherwise known as The New Central Bank Act, which took
effect on 3 July 1993, the order of the BSP Monetary Board, even
regarding the liquidation of a bank, can be questioned via a Petition
for Certiorari before a court when the same was issued in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack
or excess of jurisdiction. The court referred to therein can be construed
to mean the Court of Appeals because it is in the said court where a
Petition for Certiorari can be filed following the hierarchy of courts.
Moreover, the appellate jurisdiction of the Court of Appeals
over the final judgments, orders, resolutions or awards of the BSP
Monetary Board in administrative cases involving directors and officers of
6
banks, quasi-banks, and trust entities, is affirmed in BSP Circular No.
477, Series of 2005. The said BSP Circular expressly provides that the
resolution rendered by the BSP Monetary Board in administrative cases
may be appealed to the Court of Appeals within the period and the
manner provided under Rule 43 of the 1997 Revised Rules of Civil
Procedure.
With all the foregoing, it cannot now be questioned that the
Court of Appeals has appellate jurisdiction over the final judgments,
orders, resolutions or awards rendered by the BSP Monetary Board in
administrative cases against banks and their directors and officers, such
as UCPB, et al.
The Court then proceeds to resolve the issue of whether the Court of
Appeals erred in holding that the BSP Monetary Board summarily
dismissed the administrative complaint of EGI against UCPB, et al.
After a meticulous scrutiny of the 16 September 2003 letter-decision of
the BSP Monetary Board, this Court rules in the negative and affirms the
finding of the Court of Appeals that the BSP Monetary Board did, indeed,
summarily dismiss administrative complaint of EGI against UCPB, et al.,
for violation of Sections 36 and 37, Article IV of Republic Act No. 7653, in
relation to Section 55.1(a) of Republic Act No. 8791, and for the
commission of irregularity and unsafe or unsound banking practice.
Given the gravity and seriousness of the charges of EGI against UCPB, et
al., the sweeping statement of the BSP Monetary Board that it was
inclined to dismiss the complaint of EGI based on the evaluation made by
its Supervision and Examination Department I and Office of the General
Counsel and Legal Services, is simply insufficient and
unsatisfactory. Worse, the BSP Monetary Board merely presented the
following conclusions without bothering to explain its bases for the same:
(1) UCPB computed interest on loans based on BSP rules and regulations
which prohibit banks from accruing interest on loans that have become
non-performing (BSP Circular No. 202); (2) fair market value of assets to
be foreclosed is different from the bid price submitted during foreclosure
and there is no statutory obligation for the latter to be equivalent to the
former; (3) regarding the alleged P145,163,000.00 fabricated loan, the
documents showed that there were the EGI Board resolution to borrow,
promissory note signed by Mr. Eulalio Ganzon, and Loan Agreement
stating the proceeds shall be used to pay outstanding availments and
interest servicing; and (4) there is no finding by Supervision and
Examination Department I on the alleged double charging and/or
padding of transaction costs.
Further, in resolving the matter before it, the BSP Monetary Board never
considered the UCPB Internal Memorandum dated 22 February 2001,
which was the heart of the administrative complaint of EGI against
UCPB, et al. The BSP Monetary Board did not even attempt to establish
whether it was regular or sound practice for a bank to keep a record of
its borrowers loan obligations with two different sets of figures, one
higher than the other; and to disclose to the borrower only the higher
figures. The explanation of UCPB, et al., adopted by the BSP Monetary
Board that the figures in the ACTUAL column were lower than those in
the DISCLOSED TO EGI column because the former was computed in
accordance with BSP rules and regulations prohibiting the accrual of
interest on loans that have become non-performing gives rise to more
questions than answers.Examples of some of these questions would be
whether the loan obligations of EGI have become non-performing;
whether the differences between the figures in the ACTUAL and
DISCLOSED TO EGI columns indeed corresponded to the interest that
should be excluded from the figures in the first column per BSP rules and
regulations; and whether the computations of the figures in both
columns should have been freely disclosed and sufficiently explained to
EGI in the name of transparency.
The BSP Monetary Board similarly failed to clarify whether
UCPB can foreclose the mortgaged properties of EGI in amounts that
were less than the values of the said properties as determined and
stipulated by EGI and UCPB in their amended MOA. The Court once more
agrees in the ruling of the Court of Appeals that the MOA entered into by

EGI and UCPB serves as a contract between them, and it is the law that
should govern their relationship, which neither of the parties can simply
abrogate, violate, or disregard.Unfortunately, the BSP Monetary Board
never even referred to the MOA executed by the parties in its letter-
decision dated 16 September 2003.
Moreover, the BSP Monetary Board found that
the P145,163,000.00 loan of EGI from UCPB was not fabricated based on
several documents. However, there is absolute lack of explanation by the
BSP Monetary Board as to why said documents deserved more
weight vis--vis evidence of EGI of suspicious circumstances surrounding
the said loan, such as UCPB granting EGI said loan even when the latter
was already in default on its prior loan obligations, and without requiring
additional security, detailed business plan, and financial projections from
EGI.
The disregard by BSP Monetary Board of all the foregoing facts and
issues in its letter-decision dated 16 September 2003 leads this Court to
declare that it summarily dismissed the administrative complaint of EGI
against UCPB, et al. There can be no complete resolution of the
administrative complaint of EGI without consideration of these facts and
judgment on said issues.
Finally, there is no merit in the assertion of UCPB, et al. that the Court of
Appeals erred in disregarding the findings of fact of the BSP Monetary
Board in the absence of grave abuse of discretion or lack of basis for the
same.
Although, as a general rule, findings of facts of an administrative agency,
which has acquired expertise in the particular field of its endeavor, are
accorded great weight on appeal, such rule cannot be applied with
respect to the assailed findings of the BSP Monetary Board in this case.
Rather, what applies is the recognized exception that if such findings are
not supported by substantial evidence, the Court can make its own
independent evaluation of the facts.[41]
The standard of substantial evidence required in
administrative proceedings is more than a mere scintilla. It means such
relevant evidence as a reasonable mind might accept as adequate to
support a conclusion. While rules of evidence prevailing in courts of law
and equity shall not be controlling, the obvious purpose being to free
administrative boards from the compulsion of technical rules so that the
mere admission of matter which would be deemed incompetent in
judicial proceedings would not invalidate the administrative order, this
assurance of a desirable flexibility in administrative procedure does not
go so far as to justify orders without basis in evidence having rational
probative force.[42]
It cannot be convincingly said herein that the factual findings
of the BSP Monetary Board in its letter-decision dated 16 September
2003 was supported by substantial evidence since (1) most of the
findings were not supported by references to specific evidence; and (2)
the findings were made without consideration of the primary evidence
presented by EGI (i.e., the MOA and its amendments and the UCPB
Internal Memorandum dated 22 February 2001).
Even then, the Court of Appeals stopped short of categorically ruling that
UCPB, et al. committed irregularities, or unsound or unsafe banking
practice in its transactions with EGI. What the Court of Appeals positively
pronounced was that the BSP Monetary Board failed to give the
necessary consideration to the administrative complaint of EGI,
summarily dismissing the same in its 16 September 2003 letter-
decision. The 14 October 2004 Decision of the Court of Appeals clearly
remanded the case to the BSP for further proceedings since the BSP,
with its specialized knowledge and expertise on banking matters, is more
up to task to receive evidence, hold hearings, and thereafter resolve the
issues based on its findings of fact and law.
G.R. No. 168897
Also unsatisfied with the Decision dated 14 October 2004 and Resolution
dated 7 July 2005 of the Court of Appeals, EGI filed with this Court its
7
own Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure, raising the following issues:
I. The Honorable Court of
Appeals does have appellate jurisdiction
over decisions, orders, and resolutions
of the BSP/Monetary Board.
II. The Honorable Court of
Appeals was correct in FINDING that
the [BSP] summarily dismissed the
complaint of EGI.
III. Whether or not the Honorable
Court of Appeals committed patent,
grave, and reversible error when it
remanded the case to the [BSP] for
further proceedings instead of acting
upon its findings as narrated in its
Decision.
IV. Whether or not the Honorable
Court of Appeals committed patent,
grave, and reversible error in not
directing the [BSP] to impose the
appropriate penalties against [UCPB, et
al.].[43]
The Petition is docketed as G.R. No. 168897.
Since the first two issues have already been addressed by this Court in
its previous discussion herein on G.R. No. 168859, we now proceed to
resolve the next two issues raised by EGI in its Petition in G.R. No.
168897.
EGI avers that the Court of Appeals committed reversible error when it
remanded the case to the BSP for further proceedings instead of
directing the BSP to impose the applicable sanctions on UCPB, et al. EGI
reasons that the appellate court, in its Decision dated 14 October 2004,
already found that UCPB had committed several acts of serious
irregularity and conducted business in an unsafe and unsound
manner. By reason thereof, there was no more need for the Court of
Appeals to remand this case to the BSP for a further determination of
whether there were irregular and unsound practices by UCPB, et al. in its
dealings with EGI. Should this case be remanded to the BSP, there would
be nothing to prevent the BSP from ruling again that UCPB, et al., did
not commit any irregularity and unsafe or unsound business practice. To
require that this case be reviewed by the BSP would only lead to
multiplicity of suits, promote unnecessary delay and negate the
constitutional rights of all persons to a speedy disposition of their cases
before all judicial, quasi-judicial or administrative bodies.
The Court reiterates that the Court of Appeals did not yet make
conclusive findings in its Decision dated 14 October 2004, that UCPB, et
al., committed irregularities and unsound or unsafe banking practices in
their business dealings with EGI. The appellate court only adjudged that
the BSP Monetary Board summarily dismissed the administrative
complaint of EGI, without fully appreciating the facts and evidence
presented by the latter. Given the seriousness of the charges of EGI
against UCPB, et al., the BSP Monetary Board should have conducted a
more intensive inquiry and rendered a more comprehensive decision.
By remanding the case to the BSP Monetary Board, the Court of Appeals
only acted in accordance with Republic Act No. 7653 and Republic Act
No. 8791, which tasked the BSP, through the Monetary Board, to
determine whether a particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting banks, quasi-banks or
trust entities, may be deemed as conducting business in an unsafe or
unsound manner. Also, the BSP Monetary Board is the proper body to
impose the necessary administrative sanctions for the erring bank and its
directors or officers.
 8

The Court of Appeals did not deem it appropriate, on appeal, to outright

reverse the judgment of the BSP Monetary Board. The Court of Appeals
held that the BSP Monetary Board did not have sufficient basis for
dismissing the administrative complaint of EGI in its 16 September 2003
letter-decision; yet, the appellate court likewise did not find enough
evidence on record to already resolve the administrative complaint in
favor of EGI and against UCPB, et al., precisely the reason why it still
remanded the case to the BSP Monetary Board for further
proceedings. The Court of Appeals never meant to give EGI an assurance
of a favorable judgment; it only ensured that the BSP Monetary Board
shall accord all parties concerned to equal opportunity for presentation
and consideration of their allegations, arguments, and evidence. While
the speedy disposition of cases is a constitutionally mandated right, the
paramount duty of the courts, as well as quasi-judicial bodies, is to
render justice by following the basic rules and principles of due process
and fair play.
WHEREFORE, premises considered, the Petition for Review
on Certiorari of United Coconut Planters Bank, Jeronimo U. Kilayko,
Lorenzo V. Tan, Enrique L. Gana, Jaime W. Jacinto and Emily R. Lazaro,
in G.R. No. 168859; as well as the Petition for Review on Certiorari of E.
Ganzon, Inc. in G.R. No. 168897, are hereby DENIED. The Decision
dated 14 October 2004 and Resolution dated 7 July 2005 of the Court of
Appeals in CA-G.R. SP No. 81385 are hereby AFFIRMED in toto. No
costs.
SO ORDERED.

G.R. No. L-14279 October 31, 1961
THE COMMISSIONER OF CUSTOMS and THE COLLECTOR OF
CUSTOMS, petitioners,
vs.
EASTERN SEA TRADING, respondent.
Office of the Solicitor General for petitioners.
Valentin Gutierrez for respondent.
CONCEPCION, J.:
Petition for review of a judgment of the Court of Tax Appeals reversing a
decision of the Commissioner of Customs.
Respondent Eastern Sea Trading was the consignee of several shipments
of onion and garlic which arrived at the Port of Manila from August 25 to
September 7, 1954. Some shipments came from Japan and others from
Hong Kong. In as much as none of the shipments had the certificate
required by Central Bank Circulars Nos. 44 and 45 for the release
thereof, the goods thus imported were seized and subjected to forfeiture
proceedings for alleged violations of section 1363(f) of the Revised
Administrative Code, in relation to the aforementioned circulars of the
Central Bank. In due course, the Collector of Customs of Manila rendered
a decision on September 4, 1956, declaring said goods forfeited to the
Government and — the goods having been, in the meantime, released to
the consignees on surety bonds, filed by the same, as principal, and the
Alto Surety & Insurance Co., Inc., as surety, in compliance with orders of
the Court of First Instance of Manila, in Civil Cases Nos. 23942 and
23852 thereof — directing that the amounts of said bonds be paid, by
said principal and surety, jointly and severally, to the Bureau of Customs,
within thirty (30) days from notice.
On appeal taken by the consignee, said decision was affirmed by the
Commissioner of Customs on December 27, 1956. Subsequently, the
consignee sought a review of the decision of said two (2) officers by the
Court of Tax Appeals, which reversed the decision of the Commissioner
of Customs and ordered that the aforementioned bonds be cancelled and
withdrawn. Hence, the present petition of the Commissioner of Customs
for review of the decision of the Court of Tax Appeals.
The latter is based upon the following premises, namely: that the Central
Bank has no authority to regulate transactions not involving foreign
exchange; that the shipments in question are in the nature of "no-dollar"
imports; that, as such, the aforementioned shipments do not involve
foreign exchange; that, insofar as a Central Bank license and a certificate
authorizing the importation or release of the goods under consideration
are required by Central Bank Circulars Nos. 44 and 45, the latter are null
and void; and that the seizure and forfeiture of the goods imported from
Japan cannot be justified under Executive Order No. 328,1 not only
because the same seeks to implement an executive agreement 2 —
extending the effectivity of our3 Trades and Financial Agreements4 with
Japan — which (executive agreement), it believed, is of dubious validity,
but, also, because there is no governmental agency authorized to issue
the import license required by the aforementioned executive order.
The authority of the Central Bank to regulate no-dollar imports and the
validity of the aforementioned Circulars Nos. 44, and 45 have already
been passed upon and repeatedly upheld by this Court (Pascual vs.
Commissioner of Customs, L-10979 [June 30, 1959]; Acting
Commissioner of Customs vs. Leuterio, L-9142 [October 17, 1959]
Commissioner of Customs vs. Pascual, L-9836 [November 18, 1959];
Commissioner of Customs vs. Serree Investment Co., L-12007 [May 16,
1960]; Commissioner of Customs vs. Serree Investment Co., L-14274
[November 29, 1960]), for the reason that the broad powers of the
Central Bank, under its charter, to maintain our monetary stability and to
preserve the international value of our currency, under section 2 of
Republic Act No. 265, in relation to section 14 of said Act — authorizing
the bank to issue such rules and regulations as it may consider necessary
for the effective discharge of the responsibilities and the exercise of the
powers assigned to the Monetary Board and to the Central Bank —
connote the authority to regulate no-dollar imports, owing to the
influence and effect that the same may and do have upon the stability of
our peso and its international value.
9
The Court of Tax Appeals entertained doubts on the legality of the
executive agreement sought to be implemented by Executive Order No.
328, owing to the fact that our Senate had not concurred in the making
of said executive agreement. The concurrence of said House of Congress
is required by our fundamental law in the making of "treaties"
(Constitution of the Philippines, Article VII, Section 10[7]), which are,
however, distinct and different from "executive agreements," which may
be validly entered into without such concurrence.
Treaties are formal documents which require ratification with
the approval of two thirds of the Senate. Executive
agreements become binding through executive action without
the need of a vote by the Senate or by Congress.
xxx xxx xxx
. . . the right of the Executive to enter into binding
agreements without the necessity of subsequent
Congressional approval has been confirmed by long usage.
From the earliest days of our history we have entered into
executive agreements covering such subjects as commercial
and consular relations, most-favored-nation rights, patent
rights, trademark and copyright protection, postal and
navigation arrangements and the settlement of claims. The
validity of these has never been seriously questioned by our
courts.
xxx xxx xxx
Agreements with respect to the registration of trade-marks
have been concluded by the Executive with various countries
under the Act of Congress of March 3, 1881 (21 Stat. 502).
Postal conventions regulating the reciprocal treatment of mail
matters, money orders, parcel post, etc., have been
concluded by the Postmaster General with various countries
under authorization by Congress beginning with the Act of
February 20, 1792 (1 Stat. 232, 239). Ten executive
agreements were concluded by the President pursuant to the
McKinley Tariff Act of 1890 (26 Stat. 567, 612), and nine such
agreements were entered into under the Dingley Tariff Act
1897 (30 Stat. 151, 203, 214). A very much larger number of
agreements, along the lines of the one with Rumania
previously referred to, providing for most-favored-nation
treatment in customs and related matters have been entered
into since the passage of the Tariff Act of 1922, not by
direction of the Act but in harmony with it.
xxx xxx xxx
International agreements involving political issues or changes
of national policy and those involving international
arrangements of a permanent character usually take the form
of treaties. But international agreements
embodying adjustments of detail carrying out well-established
national policies and traditions and those involving
arrangements of a more or less temporary nature usually take
the form of executive agreements.
xxx xxx xxx
Furthermore, the United States Supreme Court has expressly
recognized the validity and constitutionality of executive
agreements entered into without Senate approval. (39
Columbia Law Review, pp. 753-754) (See, also, U.S. vs.
Curtis-Wright Export Corporation, 299 U.S. 304, 81 L. ed. 255;
U.S. vs. Belmont, 301 U.S. 324, 81 L. ed. 1134; U.S. vs. Pink,
315 U.S. 203, 86 L. ed. 796; Ozanic vs. U.S., 188 F. 2d. 288;
Yale Law Journal, Vol. 15, pp. 1905-1906; California Law
Review, Vol. 25, pp. 670-675; Hyde on International Law
[Revised Edition], Vol. 2, pp. 1405, 1416-1418; Willoughby on
the U.S. Constitutional Law, Vol. I [2d ed.], pp. 537-540;
Moore, International Law Digest, Vol. V, pp. 210-218;
Hackworth, International Law Digest, Vol. V, pp. 390-407).
(Emphasis supplied.)
 10

In this connection, Francis B. Sayre, former U.S. High Commissioner to

the Philippines, said in his work on "The Constitutionality of Trade
Agreement Acts":

Agreements concluded by the President which fall short of

treaties are commonly referred to as executive agreements
and are no less common in our scheme of government than
are the more formal instruments — treaties and conventions.
They sometimes take the form of exchanges of notes and at
other times that of more formal documents denominated
"agreements" time or "protocols". The point where ordinary
correspondence between this and other governments ends
and agreements — whether denominated executive
agreements or exchanges of notes or otherwise — begin, may
sometimes be difficult of ready ascertainment. It would be
useless to undertake to discuss here the large variety of
executive agreements as such, concluded from time to time.
Hundreds of executive agreements, other than those entered
into under the trade-agreements act, have been negotiated
with foreign governments. . . . It would seem to be sufficient,
in order to show that the trade agreements under the act of
1934 are not anomalous in character, that they are not
treaties, and that they have abundant precedent in our
history, to refer to certain classes of agreements heretofore
entered into by the Executive without the approval of the
Senate. They cover such subjects as the inspection of vessels,
navigation dues, income tax on shipping profits, the admission
of civil aircraft, customs matters, and commercial relations
generally, international claims, postal matters, the registration
of trademarks and copyrights, etcetera. Some of them were
concluded not by specific congressional authorization but in
conformity with policies declared in acts of Congress with
respect to the general subject matter, such as tariff acts;
while still others, particularly those with respect of the
settlement of claims against foreign governments, were
concluded independently of any legislation." (39 Columbia
Law Review, pp. 651, 755.)

The validity of the executive agreement in question is thus patent. In

fact, the so-called Parity Rights provided for in the Ordinance Appended
to our Constitution were, prior thereto, the subject of an executive
agreement, made without the concurrence of two-thirds (2/3) of the
Senate of the United States.

Lastly, the lower court held that it would be unreasonable to require

from respondent-appellee an import license when the Import Control
Commission was no longer in existence and, hence, there was, said court
believed, no agency authorized to issue the aforementioned license. This
conclusion is untenable, for the authority to issue the aforementioned
licenses was not vested exclusively upon the Import Control Commission
or Administration. Executive Order No. 328 provided for export or import
licenses "from the Central Bank of the Philippines or the Import Control
Administration" or Commission. Indeed, the latter was created only to
perform the task of implementing certain objectives of the Monetary
Board and the Central Bank, which otherwise had to be undertaken by
these two (2) agencies. Upon the abolition of said Commission, the duty
to provide means and ways for the accomplishment of said objectives
had merely to be discharged directly by the Monetary Board and the
Central Bank, even if the aforementioned Executive Order had been
silent thereon.

WHEREFORE, the decision appealed from is hereby reversed and another

one shall be entered affirming that of the Commissioner of Customs, with
cost against respondents defendant-appellee, Eastern Sea Trading. It is
so ordered.
 11

G.R. No. 88435 January 16, 2002 xxx

DEVELOPMENT BANK OF THE PHILIPPINES, JESUS P. "SECTION 3. The requirement for an annual financial audit by
ESTANISLAO, DOLORES A. SANTIAGO, LYNN H. CATUNCAN, an external independent auditor shall extend to specialized
NORMA O. TERREL, MA. ANTONIA G. REBUENO, petitioners, and unique government banks such as the Land Bank of the
vs. Philippines and the Development Bank of the Philippines."6
COMMISSION ON AUDIT, respondent.
On December 12, 1986, pursuant to Central Bank Circular No. 1124 and
CARPIO, J.: the government's commitment to the World Bank, DBP Chairman Jesus
Estanislao wrote the COA seeking approval of the DBP's engagement of a
private external auditor in addition to the COA.7
The Case

On January 2, 1987, to formalize its request for the ERL, the Philippine
This is a petition for review on certiorari1 of the letter-decision of the
government sent the World Bank a letter assuring the World Bank that
Chairman of the Commission on Audit2 ("COA" for brevity) and the letter-
pursuant to Central Bank Circular No. 1124, "all Banks, including
decision of the COA en banc3 , prohibiting the Development Bank of the
government banks, shall be fully audited by external independent
Philippines ("DBP" for brevity) from hiring a private external auditor. This
auditors x x x in addition to that provided by the Commission on Audit."
petition raises a question of first impression, whether or not the
The letter was signed by the Central Bank Governor and the Ministers of
constitutional power of the COA to examine and audit the DBP is
Finance, Trade and Industry, and Economic Planning of the Philippine
exclusive and precludes a concurrent audit of the DBP by a private
government.8
external auditor.

On January 8, 1987, the Philippine government and World Bank

The Antecedent Facts
negotiating panels reached final agreement on the private audit of the
DBP, as follows:
In 1986, the Philippine government, under the administration of then
President Corazon C. Aquino, obtained from the World Bank an Economic
"13. With respect to the draft Policy Statement, it was agreed
Recovery Loan ("ERL" for brevity) in the amount of US$310 million. The
that Sections 4, 7 and 11 would be amended as follows:
ERL was intended to support the recovery of the Philippine economy, at
that time suffering severely from the financial crisis that hit the country
during the latter part of the Marcos regime. x x x (iii) Section 11 should in line with the letter of
Development Policy, confirm that the external
independent audits would commence with a
As a condition for granting the loan, the World Bank required the
balance sheet audit as of December 31, 1986 and a
Philippine government to rehabilitate the DBP which was then saddled
full financial audit, including income statements,
with huge non-performing loans. Accordingly, the government committed
starting with the period July 1 to December 31,
to rehabilitate the DBP to make it a viable and self-sustaining financial
1986. A copy of COA's letter (referred to in par. 1,
institution in recognition of its developmental role in the economy. The
a draft of which is attached as Annex VIII)
DBP was expected to continue "providing principally medium and long-
regarding DBP's appointment of a private external
term financing to projects with risks higher than the private sector may
auditor will be sent to the Bank before the
be willing to accept under reasonable terms."4 The government's
distribution of the loan documents to the Bank's
commitment was embodied in the Policy Statement for the Development
Board, along with a copy of the scope of audit as
Bank of the Philippines which stated in part:
approved by COA and satisfactory to the Bank.

"4. Furthermore, like all financial institutions under Central

With regard to the scope of the audit to be
Bank supervision, DBP will now be required to have a private
undertaken by the private external auditors, the
external audit, and its Board of Directors will now be opened
terms of reference which will be issued to the
to adequate private sector representation. It is hoped that
selected auditors should be generally consistent
with these commitments, DBP can avoid the difficulties of the
with the attached model terms of reference for
past and can function as a competitive and viable financial
financial audits (Annex IX). These general terms of
institution within the Philippine financial system."5 (Emphasis
reference were discussed during negotiations and
supplied)
form a part of the World Bank's guidelines for
financial information on financial institutions."9
On November 28, 1986, the Monetary Board adopted Resolution No.
1079 amending the Central Bank's Manual of Regulations for Banks and
On January 20, 1987, then COA Chairman Teofisto Guingona, Jr. replied
other Financial Intermediaries, in line with the government's commitment
to the December 12, 1986 letter of the DBP Chairman. The COA
to the World Bank to require a private external auditor for DBP. Thus, on
Chairman's reply stated that:
December 5, 1986, the Central Bank Governor issued Central Bank
Circular No. 1124, providing that:
"x x x the Commission on Audit (COA) will interpose no
objection to your engagement of a private external auditor as
"SECTION 1. Subsection 1165.5 (Book I) is amended to read
required by the Economic Recovery Program Loan Agreements
as follows:
of 1987 provided that the terms for said audit are first
reviewed and approved by the Commission."10
1165.5 Financial Audit. - Each Bank, whether
Government-owned or controlled or private, shall
The following day, the COA Chairman also informed the Consultant of
cause an annual financial audit to be conducted by
the Central Bank that the COA interposed no objection to the proposed
an external independent auditor not later than
scope of audit services to be undertaken by the private external auditors
thirty (30) days after the close of the calendar year
to be engaged by the DBP.11
or the fiscal year adopted by the bank. x x x.

On February 18, 1987, the Board of Directors of the DBP approved the
x x x The Audit of a Government-owned or
hiring of Joaquin Cunanan & Co. as the DBP's private external auditor for
controlled bank by an external independent auditor
calendar year 1986 as required by Central Bank Circular No. 1124 and
shall be in addition to and without prejudice to that
the World Bank. The DBP Board of Directors placed a ceiling on the
conducted by the Commission on Audit in the
amount of reimbursable out-of-pocket expenses that could be charged
discharge of its mandate under existing law. x x x.
by the private auditor.12

On February 23, 1987, the World Bank President, in his Report to the
Bank's Executive Directors on the Philippine government's application for
the ERL, certified that the Philippine government was complying with the
requirement of a private external auditor. The World Bank President's
certification stated that:
"74. Accounting and Auditing. All banks both government and
private are now subject to accounting and auditing standards
as established by the Central Bank. To ensure full public
accountability, the Monetary Board now requires that all
government banks be subject to annual audits by independent
private auditing firms, in addition to those normally
undertaken by the Government's Commission on Audit. DBP
and PNB have already selected private auditors, and audited
accounts for 1986 and 1987 will be a requirement for the
releases of the second and third tranches, respectively, of the
ERL."13
However, a change in the leadership of the COA suddenly reversed the
course of events. On April 27, 1987, the new COA Chairman, Eufemio
Domingo, wrote the Central Bank Governor protesting the Central Bank's
issuance of Circular No. 1124 which allegedly encroached upon the COA's
constitutional and statutory power to audit government agencies. The
COA Chairman's letter informed the Governor that:
"This Commission hereby registers its strong objection to that
portion of the CBP Circular No. 1124 which requires
government banks to engage private auditors in addition to
that conducted by the Commission on Audit, and urges the
immediate amendment thereof. It is the position of this
Commission that the said requirement: (a) infringes on Article
IX-D of the Philippine Constitution; (b) violates Section 26 and
32 of the Government Auditing Code of the Philippines; (c)
exposes the financial programs and strategies of the Philippine
Government to high security risks; (d) allows the unnecessary
and unconscionable expenditure of government funds; and (e)
encourages unethical encroachment among professionals."14
On May 13, 1987, after learning that the DBP had signed a contract with
a private auditing firm for calendar year 1986, the new COA Chairman
wrote the DBP Chairman that the COA resident auditors were under
instructions to disallow any payment to the private auditor whose
services were unconstitutional, illegal and unnecessary. 15
On July 1, 1987, the DBP Chairman sent to the COA Chairman a copy of
the DBP's contract with Joaquin Cunanan & Co., signed four months
earlier on March 5, 1987. The DBP Chairman's covering handwritten note
sought the COA's concurrence to the contract.16
During the pendency of the DBP Chairman's note-request for
concurrence, the DBP paid the billings of the private auditor in the total
amount of P487,321.1417 despite the objection of the COA. On October
30, 1987, the COA Chairman issued a Memorandum disallowing the
payments, and holding the following persons personally liable for such
payment:
"SVP Fajardo who approved the voucher for payment; VP
Santiago who certified that the expenditure was authorized,
necessary and lawful; SM Terrel, Catuncan and Rebueno who
signed the checks; and the head of office who signed the
contract and who is immediately and primarily responsible for
the funds of the Bank."18
On January 19, 1988, the DBP Chairman wrote the COA Chairman
seeking reconsideration of the COA Chairman's Memorandum. 19 However,
the DBP received no response until August 29, 1988 when the COA
Chairman issued a letter-decision denying petitioner's July 1, 1987 note-
request for concurrence. The letter-decision, one of the two COA
decisions assailed in this petition, declared in part as follows:
"(a) In the letter to the Central Bank Governor x x x, this
Commission clearly stated its non-negotiable stand on the
issue in the following terms:
' x x x the very essence of the Commission on Audit
as an independent constitutional commission in the
12
total scheme of Government, is its singular function
to '[E]xamine, audit, and settle x x x all accounts
pertaining to x x x the Government, or any of its
subdivisions, x x x including government-owned or
controlled corporations.' To allow private firms to
interfere in this governmental audit domain would
be to derogate the Constitutional supremacy of
State audit as the Government's guardian of the
people's treasury, and as the prime advocate of
economy in the use of government resources.'
xxx
"(c) In the letter to the Secretary of Finance dated January
28, 1988 x x x, this Commission maintains:
1. 'COA is in no way prepared to permit 'use of
private auditors' except insofar as the law allows,
which is 'to deputize and retain in the name of the
Commission such certified public accountants and
other licensed professionals not in the public
service as it may deem necessary to assist
government auditors in undertaking specialized
audit engagements' (Sec. 31, PD No 1445). Outside
of this, the Commission does not consider the
matter of hiring private auditing firms a negotiable
matter, and this we want to emphasize to avoid
future embarrassment to the Government. The
Commission on Audit is a constitutionally-created
independent and separate body, and neither
Congress nor the Executive Department has the
power to detract from its mandated duties,
functions, and powers.
2. 'Since the proceeds of the proposed loan accrue
to the Republic of the Philippines as borrower, it
follows that its accounting and audit must comply
with the laws of this country. To specify in the Loan
Agreement that the loan account, once released to
the Government, shall be 'audited by independent
auditors acceptable to the Bank' is not only to
entirely by-pass this Commission but to ignore as
well the Constitution and the laws of this country
which vests in this Commission the 'power,
authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property x x
x pertaining to the Government.' (Sec. 2, Art. IX-D,
Phil. Const.).1âwphi1.nêt
'Such brazen disregard of the fundamental law of
this country cannot be countenanced by this
Commission.'
"In view of all the foregoing, you are hereby advised:
"1. To desist from proceeding with the audit of Joaquin
Cunanan & Co. of the Bank's financial statements for the year
ending December 31, 1987.
"2. To refrain from making any payments out of the funds of
the Development Bank of the Philippines, in the event that
such audit services have already been rendered, attention
being invited to the following provisions of the Government
Auditing Code of the Philippines:
'Sec. 108. General liability for unlawful
expenditures – Expenditures of government funds
or uses of government property in violation of law
or regulations shall be a personal liability of the
official or employee found to be directly responsible
therefore.'
"3. To restitute, within thirty (30) days from receipt hereof,
the total amount of ₱513,549.24 under CV Nos. 9136, 5014,
6201 and 4082 for professional services rendered in the audit

of the 1986 financial operations of the Bank. Pursuant to the
aforequoted provisions of law, such unlawful expenditure is
the personal liability of the official directly responsible
therefore.
"Please be guided accordingly."20
On September 26, 1988, the DBP Chairman appealed the letter-decision
to the COA en banc. On May 20, 1989, the COA en banc, in a letter-
decision, denied the DBP's appeal. This letter-decision, now also assailed
by the DBP, held that:
"Upon a circumspect evaluation of the grounds upon which
your instant request is predicated, this Commission finds the
same to be devoid of merit. As hereunder demonstrated, the
justifications offered do not inspire rational belief in the mind
of this Commission.
"First, it bears stress that CB Circular No. 1124, series of
1986, which has earlier been shown to be constitutionally and
legally infirm, cannot by any means possess any binding and
conclusive effect upon this Commission and, hence, may not
be properly invoked in support of the instant appeal.
"Secondly, it was not the International Bank for
Reconstruction and Development which required the audit of
government banks by private auditing firm, but the Central
Bank itself.
"Thirdly, insofar as this Commission is concerned, PD 2029 is
an anachronism of sorts if viewed in the light of the present
Constitution recognizing this Commission as the supreme and
exclusive audit institution of the government. This is
necessarily implicit from the bare language of Section 2(1),
Article IX-D thereof which, despite the absence of the
qualifying adjective "exclusive" that anyway would be a
surplusage, ought to be reasonably construed as vesting in
this Commission the "power, authority, and duty" to audit all
government accounts to the exclusion of any other person or
entity, whether in the public or the private sector. Expressio
unius est exclusio alterius. A contrary interpretation, such as
that being pressed upon this Commission, would reduce this
constitutional ordinance to an absurdity (reductio ad
absurdum) as it thereby would give rise to the rather
confusing spectacle, as it were, of a government agency or
corporation being audited not only by this Commission but
also and in addition thereto by one or two or several private
accounting firms – certainly a situation never intended by the
framers of the Constitution.
"Lastly, while this Commission has not lost sight of the letter
of then COA Chairman Guingona, Jr. to the DBP Chairman,
dated January 20, 1987, it has opted to be guided and
influenced by the more persuasive and controlling COA
Circular No. 860254 dated March 24, 1986, which in
categorical and precise terms ordained that:
'Accordingly, by way of reassertion and
reaffirmation of its primary audit jurisdiction, as
herein above defined, the Commission on Audit
hereby issues the following directives:
1. Any ongoing audit of a government-
owned and/or controlled corporation or
any of its subsidiaries or corporate
offsprings being conducted by a private
auditor or accounting firm shall cease
and terminate on April 15, 1986.
Henceforth, from and after said date,
the audit of said corporate entity shall
be undertaken solely and exclusively by
the Commission on Audit. x x x.'
"Premises considered, it is regretted that your instant request
for reconsideration has to be, as it is hereby, denied."21
13
Hence, on June 14, 1989 the DBP filed this petition for review with
prayer for a temporary restraining order, assailing the two COA letter-
decisions for being contrary to the Constitution and existing laws. On
June 15, 1989 this Court issued a temporary restraining order directing
the COA to cease and desist from enforcing its challenged letter-
decisions. The Office of the Solicitor General, in a Manifestation dated
October 18, 1989, declined to appear on behalf of the COA on the
ground that the Solicitor General was "taking a position adverse to that
of the COA." Consequently, a private counsel on pro bono basis
represented the COA.
The Issues
The DBP's petition raises the following issues:
1. Does the Constitution vest in the COA the sole and
exclusive power to examine and audit government banks so
as to prohibit concurrent audit by private external auditors
under any circumstance?
2. Is there an existing statute that prohibits government
banks from hiring private auditors in addition to the COA? If
there is none, is there an existing statute that authorizes
government banks to hire private auditors in addition to the
COA?
3. If there is no legal impediment to the hiring by government
banks of a private auditor, was the hiring by the DBP of a
private auditor in the case at bar necessary, and were the
fees paid by DBP to the private auditor reasonable, under the
circumstances?
The Court's Ruling
The DBP's petition is meritorious.
First Issue: Power of COA to Audit under the Constitution
The resolution of the primordial issue of whether or not the COA has the
sole and exclusive power to examine and audit government banks
involves an interpretation of Section 2, Article IX-D of the 1987
Constitution. This Section provides as follows:
"Sec. 2. (1) The Commission on Audit shall have the power,
authority, and duty to examine, audit, and settleall accounts
pertaining to the revenue and receipts of, and expenditures or
uses of funds and property, owned and held in trust by, or
pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned or
controlled corporations with original charters, x x x.
"(2) The Commission shall have the exclusive authority,
subject to the limitations in this Article, to define the scope of
its audit and examination, establish the techniques and
methods required therefore, and promulgate accounting and
auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties." (Emphasis
supplied)
The COA vigorously asserts that under the first paragraph of Section 2,
the COA enjoys the sole and exclusivepower to examine and audit all
government agencies, including the DBP. The COA contends this is
similar to its sole and exclusive authority, under the second paragraph of
the same Section, to define the scope of its audit, promulgate auditing
rules and regulations, including rules on the disallowance of unnecessary
expenditures of government agencies. The bare language of Section 2,
however, shows that the COA's power under the first paragraph is not
declared exclusive, while its authority under the second paragraph is
expressly declared "exclusive." There is a significant reason for this
marked difference in language.

During the deliberations of the Constitutional Commission, Commissioner
Serafin Guingona proposed the addition of the word "exclusive" in the
first paragraph of Section 2, thereby granting the COA the sole and
exclusive power to examine and audit all government agencies.
However, the Constitutional Commission rejected the addition of the
word "exclusive" in the first paragraph of Section 2 and Guingona was
forced to withdraw his proposal. Commissioner Christian Monsod
explained the rejection in this manner:
"MR. MONSOD. Earlier Commissioner Guingona, in
withdrawing his amendment to add "EXCLUSIVE" made a
statement about the preponderant right of COA.
"For the record, we would like to clarify the reason for not
including the word. First, we do not want an Article that would
constitute a disincentive or an obstacle to private investment.
There are government institutions with private investments in
them, and some of these investors - Filipinos, as well as in
some cases, foreigners - require the presence of private
auditing firms, not exclusively, but concurrently. So this does
not take away the power of the Commission on Audit. Second,
there are certain instances where private auditing may be
required, like the listing in the stock exchange. In other
words, we do not want this provision to be an unnecessary
obstacle to privatization of these companies or attraction of
investments."22 (Emphasis supplied)
Shortly thereafter, Commissioner Guingona attempted to resurrect his
amendment by proposing the following provision:
"Private auditing firms may not examine or audit accounts
pertaining to the revenue and receipts of, and expenditures or
uses of funds and property owned or held in trust by or
pertaining to the Government or any of its subdivisions,
agencies or instrumentalities."23
Guingona argued that a private audit in addition to the COA audit would
be a useless duplication and an unnecessary expense on the part of
government.
The Constitutional Commission also rejected this proposed provision,
after Commissioner Monsod made the following explanation:
"MR. MONSOD. x x x But it is also a fact that even
government agencies, instrumentalities and subdivisions
sometimes borrow money from abroad. And if we are at all
going to preclude the possibility of any concurrent auditing, if
that is required, and insist that it is only exclusively the
government which can audit, we may be unnecessarily tying
their hands without really accomplishing much more than
what we want. As long as the COA is there, and the COA's
power cannot be eliminated by law, by decree or anything of
that sort, then the government funds are protected.
As far as the question of fees is concerned, this is always
negotiable. Besides, if one talks about auditing fees, these are
governed by certain regulations within the auditing profession,
beyond which auditing firms cannot go. Furthermore, the
government can always refuse to pay unconscionable fees.
So, that matter really is not that relevant. But I think what we
want to insist on is that there should be some flexibility so
that a procedural requirement does not impede a substantive
transaction as long as COA is there."24 (Emphasis supplied)
The rejection of Guingona's second proposal put an end to all efforts to
grant the COA the sole and exclusive power to examine and audit
government agencies.
In sharp contrast, the Constitutional Commission placed the word
"exclusive" to qualify the authority of the COA under the second
paragraph of the same Section 2. The word "exclusive" did not appear in
the counterpart provisions of Section 2 in the 1935 and 1973
Constitutions.25 There is no dispute that the COA's authority under the
second paragraph of Section 2 is exclusive as the language of the
Constitution admits of no other meaning. Thus, the COA has the
exclusive authority to decide on disallowances of unnecessary
14
government expenditures. Other government agencies and their officials,
as well as private auditors engaged by them, cannot in any way intrude
into this exclusive function of the COA.
The qualifying word "exclusive" in the second paragraph of Section 2
cannot be applied to the first paragraph which is another sub-section of
Section 2. A qualifying word is intended to refer only to the phrase to
which it is immediately associated, and not to a phrase distantly located
in another paragraph or sub-section.26 Thus, the first paragraph of
Section 2 must be read the way it appears, without the word "exclusive",
signifying that non-COA auditors can also examine and audit government
agencies. Besides, the framers of the Constitution intentionallyomitted
the word "exclusive" in the first paragraph of Section 2 precisely to
allow concurrent audit by private external auditors.
The clear and unmistakable conclusion from a reading of the entire
Section 2 is that the COA's power to examine and audit is non-exclusive.
On the other hand, the COA's authority to define the scope of its audit,
promulgate auditing rules and regulations, and disallow unnecessary
expenditures is exclusive.
Moreover, as the constitutionally mandated auditor of all government
agencies, the COA's findings and conclusions necessarily prevail over
those of private auditors, at least insofar as government agencies and
officials are concerned. The superiority or preponderance of the COA
audit over private audit can be gleaned from the records of the
Constitutional Commission, as follows:
"MR. GUINGONA. Madam President, after consultation with
the honorable members of the Committee, I have amended
my proposed amendment by deleting the word EXCLUSIVE
because I was made to understand that the Commission on
Audit will still have the preponderant power and authority to
examine, audit and settle."27 (Emphasis supplied)
The findings and conclusions of the private auditor may guide private
investors or creditors who require such private audit. Government
agencies and officials, however, remain bound by the findings and
conclusions of the COA, whether the matter falls under the first or
second paragraph of Section 2, unless of course such findings and
conclusions are modified or reversed by the courts.
The power of the COA to examine and audit government agencies, while
non-exclusive, cannot be taken away from the COA. Section 3, Article IX-
D of the Constitution mandates that:
"Sec. 3. No law shall be passed exempting any entity of the
Government or its subsidiary in any guise whatsoever, or any
investment of public funds, from the jurisdiction of the
Commission on Audit."
The mere fact that private auditors may audit government agencies does
not divest the COA of its power to examine and audit the same
government agencies. The COA is neither by-passed nor ignored since
even with a private audit the COA will still conduct its usual examination
and audit, and its findings and conclusions will still bind government
agencies and their officials. A concurrent private audit poses no danger
whatsoever of public funds or assets escaping the usual scrutiny of a
COA audit.
Manifestly, the express language of the Constitution, and the clear intent
of its framers, point to only one indubitable conclusion - the COA does
not have the exclusive power to examine and audit government
agencies. The framers of the Constitution were fully aware of the need to
allow independent private audit of certain government agencies in
addition to the COA audit, as when there is a private investment in a
government-controlled corporation, or when a government corporation is
privatized or publicly listed, or as in the case at bar when the
government borrows money from abroad.
In these instances the government enters the marketplace and competes
with the rest of the world in attracting investments or loans. To succeed,
the government must abide with the reasonable business practices of the
marketplace. Otherwise no investor or creditor will do business with the
government, frustrating government efforts to attract investments or
secure loans that may be critical to stimulate moribund industries or

resuscitate a badly shattered national economy as in the case at bar. By
design the Constitution is flexible enough to meet these exigencies. Any
attempt to nullify this flexibility in the instances mentioned, or in similar
instances, will be ultra vires, in the absence of a statute limiting or
removing such flexibility.
The deliberations of the Constitutional Commission reveal eloquently the
intent of Section 2, Article IX-D of the Constitution. As this Court has
ruled repeatedly, the intent of the law is the controlling factor in the
interpretation of the law.28 If a law needs interpretation, the most
dominant influence is the intent of the law.29 The intent of the law is that
which is expressed in the words of the law, which should be discovered
within its four corners aided, if necessary, by its legislative history.30 In
the case of Section 2, Article IX-D of the Constitution, the intent of the
framers of the Constitution is evident from the bare language of Section
2 itself. The deliberations of the Constitutional Commission confirm
expressly and even elucidate further this intent beyond any doubt
whatsoever.
There is another constitutional barrier to the COA's insistence of
exclusive power to examine and audit all government agencies. The
COA's claim clashes directly with the Central Bank's constitutional power
of "supervision" over banks under Section 20, Article XII of the
Constitution. This provision states as follows:
"Sec. 20. The Congress shall establish an independent central
monetary authority, the members of whose governing board
must be natural-born Filipino citizens, of known probity,
integrity, and patriotism, the majority of whom shall come
from the private sector. They shall also be subject to such
other qualifications and disabilities as may be prescribed by
law. The authority shall provide policy direction in the areas of
money, banking, and credit. It shall have supervision over the
operations of banks and exercise such regulatory powers as
may be provided by law over the operations of finance
companies and other institutions performing similar
functions." (Emphasis supplied)
Historically, the Central Bank has been conducting periodic and special
examination and audit of banks to determine the soundness of their
operations and the safety of the deposits of the public. Undeniably, the
Central Bank's power of "supervision" includes the power to examine and
audit banks, as the banking laws have always recognized this power of
the Central Bank.31 Hence, the COA's power to examine and audit
government banks must be reconciled with the Central Bank's power to
supervise the same banks. The inevitable conclusion is that the COA and
the Central Bank have concurrent jurisdiction, under the Constitution, to
examine and audit government banks.
However, despite the Central Bank's concurrent jurisdiction over
government banks, the COA's audit still prevails over that of the Central
Bank since the COA is the constitutionally mandated auditor of
government banks. And in matters falling under the second paragraph of
Section 2, Article IX-D of the Constitution, the COA's jurisdiction is
exclusive. Thus, the Central Bank is devoid of authority to allow or
disallow expenditures of government banks since this function belongs
exclusively to the COA.
Second Issue: Statutes Prohibiting or Authorizing Private
Auditors
The COA argues that Sections 26, 31 and 32 of PD No. 1445, otherwise
known as the Government Auditing Code of the Philippines, prohibit the
hiring of private auditors by government agencies. Section 26 of PD No.
1445 provides that:
"Section 26. General Jurisdiction. The authority and powers of
the Commission shall extend to and comprehend all matters
relating to auditing procedures, systems and controls, the
keeping of the general accounts of the Government, the
preservation of vouchers pertaining thereto for a period of ten
years, the examination and inspection of the books, records,
and papers relating to those accounts; and the audit and
settlement of the accounts of all persons respecting funds or
property received or held by them in an accountable capacity,
as well as the examination, audit, and settlement of all debts
and claims of any sort due or owing to the Government or any
15
of its subdivisions, agencies or instrumentalities. The said
jurisdiction extends to all government-owned or controlled
corporations, including their subsidiaries, and other self-
governing boards, commissions, or agencies of the
Government, and as herein prescribed, including non-
governmental entities subsidized by the government, those
funded by donations through the government, those required
to pay levies or government share, and those for which the
government has put up a counterpart fund or those partly
funded by the government."
Section 26 defines the extent and scope of the powers of the COA.
Considering the comprehensive definition in Section 26, the COA's
jurisdiction covers all government agencies, offices, bureaus and units,
including government-owned or controlled corporations, and even non-
government entities enjoying subsidy from the government. However,
there is nothing in Section 26 that states, expressly or impliedly, that the
COA's power to examine and audit government banks is exclusive,
thereby preventing private audit of government agencies concurrently
with the COA audit.
Section 26 is a definition of the COA's "general jurisdiction." Jurisdiction
may be exclusive or concurrent. Section 26 of PD No. 1445 does not
state that the COA's jurisdiction is exclusive, and there are other laws
providing for concurrent jurisdiction. Thus, Section 26 must be applied in
harmony with Section 5832 of the General Banking Law of 2000 (RA No.
8791) which authorizes unequivocally the Monetary Board to require
banks to hire independent auditors. Section 58 of the General Banking
Law of 2000 states as follows:
"Section 58. Independent Auditor. - The Monetary Board may
require a bank, quasi-bank or trust entity to engage the
services of an independent auditor to be chosen by the bank,
quasi-bank or trust entity concerned from a list of certified
public accountants acceptable to the Monetary Board. The
term of the engagement shall be as prescribed by the
Monetary Board which may either be on a continuing basis
where the auditor shall act as resident examiner, or on the
basis of special engagements; but in any case, the
independent auditor shall be responsible to the bank's, quasi-
bank's or trust entity's board of directors. A copy of the report
shall be furnished to the Monetary Board. x x x." (Emphasis
supplied)
Moreover, Section 26 must also be applied in conformity with Sections 25
and 2833 of the New Central Bank Act (RA No. 7653) which authorize
expressly the Monetary Board to conduct periodic or special examination
of all banks. Sections 25 and 28 of the New Central Bank Act state as
follows:
"Sec. 25. Supervision and Examination. The Bangko Sentral
shall have supervision over, and conduct periodic or special
examinations of, banking institutions x x x. (Emphasis
supplied)
xxx
"Sec. 28. Examination and Fees. The supervising and
examining department head, personally or by deputy,
shall examine the books of every banking institution once in
every twelve (12) months, and at such other time as the
Monetary Board by an affirmative vote of five (5) members
may deem expedient and to make a report on the same to the
Monetary Board: x x x." (Emphasis supplied)
The power vested in the Monetary Board under Section 58 of the General
Banking Law of 2000, and Sections 25 and 28 of the New Central Bank
Act, emanates from the Central Bank's explicit constitutional mandate to
exercise "supervision over the operations of banks." Under Section 4 of
the General Banking Law of 2000, the term "supervision" 34 is defined as
follows:
"Section 4. Supervisory Powers. The operations and activities
of banks shall be subject to supervision of the Bangko Sentral.
"Supervision" shall include the following:

xxx
4.2. The conduct of examination to determine
compliance with laws and regulations if the
circumstances so warrant as determined by the
Monetary Board;
xxx
4.4. Regular investigation which shall not be
oftener than once a year from the last date
of examinationto determine whether an institution
is conducting its business on a safe or sound basis:
Provided, That the deficiencies/irregularities found
by or discovered by an audit shall immediately be
addressed;
x x x." (Emphasis supplied)
Clearly, under existing laws, the COA does not have the sole and
exclusive power to examine and audit government banks. The Central
Bank has concurrent jurisdiction to examine and audit, or cause the
examination and audit, of government banks.
Section 31 of PD No. 1445, another provision of law claimed by the COA
to prohibit the hiring of private auditors by government agencies,
provides as follows:
"Section 31. Deputization of private licensed professionals to
assist government auditors. - (1) The Commission may, when
the exigencies of the service so require, deputize and retain in
the name of the Commission such certified public accountants
and other licensed professionals not in the public service as it
may deem necessary to assist government auditors in
undertaking specialized audit engagements.
"(2) The deputized professionals shall be entitled to such
compensation and allowances as may be stipulated, subject to
pertinent rules and regulations on compensation and fees."
According to the COA, Section 31 is the maximum extent that private
auditors can participate in auditing government agencies and anything
beyond this is without legal basis. Hence, the COA maintains that the
hiring of private auditors who act in their own name and operate
independently of the COA is unlawful.
Section 31 is bereft of any language that prohibits, expressly or
impliedly, the hiring of private auditors by government agencies. This
provision of law merely grants authority to the COA to hire and deputize
private auditors to assist the COA in the auditing of government
agencies. Such private auditors operate under the authority of the COA.
By no stretch of statutory construction can this provision be interpreted
as an absolute statutory ban on the hiring of private auditors by
government agencies. Evidently, the language of the law does not
support the COA's claim.
Moreover, the COA further contends that Section 32 of PD No. 1445 is
another provision of law that prohibits the hiring of private auditors by
government agencies. Section 32 provides as follows:
"Section 32. Government contracts for auditing, accounting,
and related services. (1) No government agency shall enter
into any contract with any private person or firm for services
to undertake studies and services relating to government
auditing, including services to conduct, for a fee, seminars or
workshops for government personnel on these topics, unless
the proposed contract is first submitted to the Commission to
enable it to determine if it has the resources to undertake
such studies or services. The Commission may engage the
services of experts from the public or private sector in the
conduct of these studies.
"(2) Should the Commission decide not to undertake the study
or service, it shall nonetheless have the power to review the
16
contract in order to determine the reasonableness of its
costs." (Emphasis supplied)
Section 32 refers to contracts for studies and services "relating to
government auditing" which the COA may or may not want to undertake
itself for a government agency. Stated another way, Section 32 speaks of
studies and services that the COA may choose not to render to a
government agency. Obviously, the subject of these contracts is not the
audit itself of a government agency because the COA is compelled to
undertake such audit and cannot choose not to conduct such audit. The
Constitution and existing law mandate the COA to audit all government
agencies. Section 2, Article IX-D of the Constitution commands that the
COA "shall have the x x x duty to examine, audit, and settle all accounts"
of government agencies (Emphasis supplied). Similarly, the Revised
Administrative Code of 1987 directs that the "Commission on Audit shall
have the x x x duty to examine, audit, and settle all accounts"35 of
government agencies (Emphasis supplied). Hence, the COA cannot
refuse to audit government agencies under any circumstance.
The subject of the contracts referred to in Section 32 is necessarily
limited to studies, seminars, workshops, researches and other services
on government auditing which the COA may or may not undertake at its
discretion, thereby excluding the audit itself of government agencies.
Since the COA personnel have the experience on government auditing
and are in fact the experts on this subject, it is only proper for the COA
to be granted the right of first refusal to undertake such services if
required by government agencies. This is what Section 32 is all about
and nothing more. Plainly, there is nothing in Section 32 which prohibits
the hiring of private auditors to audit government agencies concurrently
with the COA audit.1âwphi1.nêt
On the other hand, the DBP cites Central Bank Circular No. 112436 as
legal basis for hiring a private auditor. This Circular amended Subsection
1165.5 (Book I) of the Manual of Regulations for Banks and other
Financial Intermediaries to require "[E]ach bank, whether government-
owned or controlled or private, x x x (to) cause an annual financial audit
to be conducted by an external auditor x x x." Moreover, the Circular
states that the "audit of a government-owned or controlled bank by an
external independent auditor shall be in addition to and without prejudice
to that conducted by the Commission on Audit in the discharge of its
mandate under existing law." Furthermore, the Circular provides that the
"requirement for an annual audit by an external independent auditor
shall extend to specialized and unique government banks such as the
Land Bank of the Philippines and the Development Bank of the
Philippines."
The Central Bank promulgated Circular No. 1124 on December 5, 1986
pursuant to its power under the Freedom Constitution, the fundamental
law then in force, as well as pursuant to its general rule making authority
under the General Banking Act (RA No. 337), the banking law in effect at
that time. Under the Freedom Constitution, the Central Bank exercised
supervisory authority over the banking system. Section 14, Article XV of
the 1973 Constitution, which was re-adopted in the Freedom
Constitution, provided as follows:
"SEC. 14. The Batasang Pambansa shall establish a central
monetary authority which shall provide policy direction in the
areas of money, banking and credit. It shall have supervisory
authority over the operations of banks and exercise such
regulatory authority as may be provided by law over the
operations of finance companies and other institutions
performing similar functions. Until the Batasang Pambansa
shall otherwise provide, the Central Bank of the Philippines,
operating under existing laws, shall function as the central
monetary authority." (Emphasis supplied)
Section 6-D of the General Banking Act (RA No. 337) vested the
Monetary Board with the specific power to "require a bank to engage the
services of an independent auditor to be chosen by the bank concerned
from a list of certified public accountants acceptable to the Monetary
Board."
The 1987 Constitution created an independent central monetary
authority with substantially the same powers as the Central Bank under
the 1973 Constitution and the Freedom Constitution. Section 20, Article
XII of the 1987 Constitution provides that the Monetary Board "shall
have supervision over the operations of banks". The specific power of
the Central Bank under the General Banking Act (RA No. 337) to require
 17

an independent audit of banks was re-enacted in Section 58 of the
General Banking Law of 2000 (RA No. 8791).
Indubitably, the Central Bank had the express constitutional and
statutory power to promulgate Circular No. 1124 on December 5, 1986.
The power granted to the Central Bank to issue Circular No. 1124 with
respect to the independent audit of banks is direct, unambiguous, and
beyond dispute. The Bangko Sentral ng Pilipinas, which succeeded the
Central Bank, retained under the 1987 Constitution and the General
Banking Law of 2000 (RA No. 8791) the same constitutional and
statutory power the Central Bank had under the Freedom Constitution
and the General Banking Act (RA No. 337) with respect to the
independent audit of banks.
negotiating panels on January 8, 1987, required that "a copy of COA's
letter x x x regarding DBP's appointment of a private external auditor will
be sent to the (World) Bank before the distribution of the loan
documents to the Bank's Board, along with a copy of the scope of audit
as approved by COA and satisfactory to the Bank" (Emphasis supplied).
As a creditor, the World Bank needed the private audit for its own
information to monitor the progress of the DBP's rehabilitation. This is
apparent from the said Agreed Minutes which provided that the "general
terms of reference (for the hiring of private external audit) were
discussed during the negotiations and form part of the World
Bank's guidelines for financial information on financial
institutions"42 (Emphasis supplied).

Circular No. 1124 has the force and effect of law. In a long line of
decisions,37 this Court has held consistently that the rules and regulations
issued by the Central Bank pursuant to its supervisory and regulatory
powers have the force and effect of law. The DBP, being a bank under
the constitutional and statutory supervision of the Central Bank, was
under a clear legal obligation to comply with the requirement of Circular
No. 1124 on the private audit of banks. Refusal by the DBP to comply
with the Circular would have rendered the DBP and its officers liable to
the penal provisions of the General Banking Act,38 as well as the
administrative and penal sanctions under the Central Bank Act.39
The DBP also relies on Section 8 of PD No. 2029 as its statutory basis for
hiring a private auditor. This Section states in part as follows:
The hiring of a private auditor being an express condition for the grant of
the US$310 million Economic Recovery Loan, a major objective of which
was the DBP's rehabilitation, the same was a necessary corporate act on
the part of the DBP. The national government, represented by the
Central Bank Governor, as well as the Ministers of Finance, Trade, and
Economic Planning, had already committed to the hiring by all
government banks of private auditors in addition to the COA. For the
DBP to refuse to hire a private auditor would have aborted the vital loan
and derailed the national economic recovery, resulting in grave
consequences to the entire nation. The hiring of a private auditor was
not only necessary based on the government's loan covenant with the
World Bank, it was also necessary because it was mandated by Central
Bank Circular No. 1124 under pain of administrative and penal sanctions.

The last matter to determine is the reasonableness of the fees charged

"The audit of government corporations by the Commission on
by Joaquin C. Cunanan & Co., the private auditor hired by the DBP. The
Audit shall not preclude government corporations from
COA describes the private auditor's fees as an "excessive, extravagant or
engaging the services of private auditing firms: Provided,
unconscionable expenditure" of government funds. For the audit of the
however, that even if the services of the latter are availed of,
DBP's financial statements in 1986, the private auditor billed the DBP the
the audit report of the Commission on Audit shall serve as the
amount of ₱487,321.14.43 In 1987, the private auditor billed the DBP the
report for purposes of compliance with audit requirements as
amount of ₱529,947.00.44 In comparison, the COA billed the DBP an audit
required of government corporations under applicable law."
fee of ₱27,015,963.0045 in 1988, and ₱15,421,662.0046 in 1989. Even
granting that the COA's scope of audit services was broader,47 still it
Section 8 of PD No. 2029, however, also provides that the "policy of could not be said that the private auditor's fees are excessive,
withdrawal of resident auditors shall be fully implemented x x x." Section extravagant or unconscionable compared to the COA's billings.
2 of the same decree also excludes from the term "government-owned
or controlled corporation" two classes of corporations. The first are
The hiring of a private auditor by the DBP being a condition of the
originally private corporations the majority of the shares of stock of
US$310 million World Bank loan to the Philippine government, the fees
which are acquired by government financial institutions through
of such private auditor are in reality part of the government's cost of
foreclosure or dacion en pago. The second are subsidiary corporations of
borrowing from the World Bank. The audit report of the private auditor is
government corporations, which subsidiaries are organized exclusively to
primarily intended for the World Bank's information 48 on the financial
own, manage or lease physical assets acquired by government financial
status of the DBP whose rehabilitation was one of the objectives of the
institutions through foreclosure or dacion en pago. Claiming that PD No.
loan. An annual private audit fee of about half a million pesos added to
2029 operates to exempt certain government-owned corporations from
the interest on a US$310 million loan would hardly make the cost of
the COA's jurisdiction in violation of Section 3, Article IX-D of the
borrowing excessive, extravagant or unconscionable. Besides, the
Constitution, the COA is questioning the constitutionality of PD No. 2029.
condition imposed by a lender, whose money is at risk, requiring the
borrower or its majority-owned subsidiaries to submit to audit by an
There is, however, no compelling need to pass upon the constitutionality independent public accountant, is a reasonable and normal business
of PD No. 2029 because the Constitution and existing banking laws allow practice. 1âwphi1.nêt
such hiring. The issues raised in this case can be resolved adequately
without resolving the constitutionality of PD No. 2029. This Court will
WHEREFORE, the petition is hereby GRANTED. The letter-decision of
leave the issue of the constitutionality of PD No. 2029 to be settled in
the Chairman of the Commission on Audit dated August 29, 1988, and
another case where its resolution is an absolute necessity.40
the letter-decision promulgated by the Commission on Audit en
banc dated May 20, 1989, are hereby SET ASIDE, and the temporary
Third Issue: Necessity of Private Auditor and Reasonableness of restraining order issued by the court enjoining respondent Commission
the Fees on Audit from enforcing the said decisions is hereby
made PERMANENT.
The remaining issue to be resolved is whether or not the DBP's hiring of
a private auditor was necessary and the fees it paid reasonable under SO ORDERED.
the circumstances. The hiring by the DBP of a private auditor was a
condition imposed by the World Bank for the grant to the Philippine
government in early 1987 of a US$310 million Economic Recovery Loan,
at a time when the government desperately needed funds to revive a
badly battered economy. One of the salient objectives of the US$310
million loan was the rehabilitation of the DBP which was then burdened
with enormous bad loans. The rehabilitation of the DBP was important in
the overall recovery of the national economy.

On February 23, 1986, the World Bank President reported to the Bank's
Executive Directors that the privately audited accounts of the DBP for
1986 and 1987 "will be a requirement for the releases of the second and
third tranches, respectively, of the ERL" (Emphasis supplied). Moreover,
the Agreed Minutes of Negotiations on the Philippine Economic Recovery
Program41 signed by the Philippine government and World Bank

G.R. No. L-41480 April 30, 1976
GONZALO SY, doing business under the name and style of
GONZALO SY TRADING, petitioner-appellant,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent-appellee.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of
Manila in its Civil Case No. 81051, which was certified to Us by the Court
of Appeals on August 28, 1975, raising the question of whether or not
petitioner-appellant's Special Import Permit granted by the Central Bank
of the Philippines authorizing it to import fresh fruits from Japan on a
"no-dollar" basis has already expired when it made the importations
under litigation.
The petitioner-appellant is a trading company engaged in the importation
of fresh fruits like oranges, grapes, apples and lemons from the different
parts of the world for the last nineteen years. On September 28, 1968, it
wrote to the Deputy Governor of the Central Bank of the Philippines, Mr.
Amado R. Briñas requesting authority to import from the country of
Japan on "no-dollar" basis fresh fruits in the total amount of
US$715,000.00. The pertinent portions of petitioner-appellant's
letter 1 read.
We are importers for the last 19 years. Our line of
business is the importation of fresh fruits like fresh
oranges, grapes and apples from various parts of
the world.
We are fully aware of the Central Bank policies and
regulations with respect to imports particularly the
effects of Central Bank Circular 260 to authorized
agent banks. Our item of importations which is
fresh fruits calls for 175% Special Time Deposit for
120-days. With the fast approaching Christmas
season we are certain we cannot cope with the
demands of our buyers of fresh fruits under this
requirement imposed on importers. We have
brought this matter to the attention of our various
shippers of fresh apples from Japan for their proper
guidance.
xxx xxx xxx
In this connection, we respectfully request your
good office for an authority or issue us Special
Import Permit on No-Dollar Basis, to enable us to
receive the goods from our reliable and helpful
suppliers who have complete trust and confidence
in us. As manifested in their respective letters to
us, we can pay or remit them the payment of the
fruits shipped to us even after the season, which is
around April of next year, and if our dollar position
is favorable. We honestly believe, that this offer
from our suppliers is very inducive and if possible,
we would not like to miss this opportunity.
On October 2, 1968, Mr. Julian D. Mercado, the Executive Assistant to
Deputy Governor Briñas denied the request, stating that "... since only
the transactions specifically enumerated in Central Bank Circular No. 247
dated July 21, 1967 are allowed as 'no-dollar importation', we regret to
advise that your request cannot be given due course by this office." 2
Petitioner-appellant sought a reconsideration of this denial on October
22, 1968 thru Deputy Governor Amado R. Briñas explaining that their
"... case is a very special one and different from regular importation," at
the same time reminding that "... this item of fresh apples is very much
needed in the coming Christmas season and we are confident that if our
request be given consideration, we will be able to put good stock of fresh
apples in the market at a cheaper cost for the benefit of the consuming
public." 3
18
Another letter was coursed by petitioner-appellant on November 6, 1968
to the Monetary Board of the Central Bank thru Deputy Governor Amado
R. Briñas requesting "your good office for an authority to import on no
Letter of Credit basis, or issue us Special Import Permit for the amount
of US$715,000.00 on No-Dollar Basis, to enable us to import the fresh
fruits which we need for Christmas, from our reliable and helpful
suppliers." In this letter, petitioner-appellant points out that "the items
called for such as apples, oranges and grapes are perishable in nature
and can not be stored for a longer period of time, and the main purpose
of this importation is to serve the requirements during the Christmas
Season." 4
On November 19, 1968, the Monetary Board of the Central Bank issued
Resolution No. 2038 approving petitioner-appellant's request for Special
Import Permit on No-Dollar Basis, 5 thus:
The Board, by unanimous vote, authorized Gonzalo
Sy Trading to import on a no- dollar basis, without
letters of credit, fresh fruits from Japan valued at
$35000.00, subject to the special time deposit of
100% which shall be held by the bank concerned
for a period of 120 days as well as to the normal
customs duties and taxes. It is understood that
there shall be no commitment on the part of the
Central Bank to provide foreign exchange to cover
the said importation.
Deputy Governor Amado R. Briñas communicated this approval of the
request to petitioner-appellant, thru its Assistant Manager, Mr. E. B.
Pidlaoan on November 21, 1968. 6
On November 27, 1968, petitioner-appellant sent a letter 7 to the then
Chairman of the Monetary Board, Mr. Eduardo Romualdez, reading:
Thank you very much for your approval to our
request for special permit to import on no-dollar
basis, without letter of credit fresh fruits valued at
US$350,000.00.
We noted however, that 100% special time deposit
for 120 days is required. We beg to point out that
this particular importation is only for the Christmas
Season, and if we will deposit the amount of about
P1,400,000.00 which will not be touched for 120
days, and considering the fact that on this
importation alone, we will pay the government in
the form of customs taxes and duties, no less than
P700,000.00, then we will be needing more than
P3,000,000.00.
We beg to request therefore, for a reconsideration
by your good office, and allow us to put up 20%
special time deposit for 120 days instead of 100%.
The request was denied by Deputy Governor Briñas in a letter, dated
December 9, 1968. 8
Thereafter, on February 25, 1969, petitioner-appellant made his first
importation from Japan. 9 The bulk of the importations from August 7,
1969 thru November 5, 1969 came from San Francisco, California and
Australia. 10 The importation on January 5, 1970, consisting of fresh
oranges and lychees came from Taipei, Taiwan, 11 while those of March
16, 1970, consisting of fresh oranges, came from Israel. 12 For these
importations, the Prudential Bank and Trust Company acted as the agent
of the Central Bank in the issuance of the corresponding release
certificates for the entry of the goods. By the beginning of June, 1970,
the total amount used out of the $350,000.00 Special Import Permit was
already $314,142.51, leaving a balance of $35,857.49. 13
As early as October 30, 1969, petitioner-appellant requested from
Deputy Governor Amado R. Briñas 14 "an amendment of the country of
origin of our importations to include other countries except communist
countries" since the fresh fruits from Japan "are seasonal (and) our
shippers cannot fully fill up our requirements to comply with their total
 19

commitments to us without procuring from other sources like Australia, 4. 100 Cartons of Fresh Lemons and 1000 Cartons
Taiwan, U.S.A. and other countries with whom we have trade relations." of Fresh Oranges, on board SS "Turandot";

On November 19, 1969, the Deputy Governor, Mr. Amado R. Briñas 5. 560 Cartons of Fresh Apples on board SS
replied: 15 "Anshun" and

This has reference to your letter dated October 30, 6. 1,662 Cartons of Fresh Apples on board SS
1969 requesting amendment of the country of "Anshun.";
origin of your importations of fresh fruits from
Japan to include other countries except communist
consigned to petitioner-appellant, with a total FOB value of
countries as authorized by Monetary Board
US$17,568.49, "for having been imported in violation of Central Bank
Resolution No. 2038 dated November 19, 1968.
Circular No. 289, in relation to Section 2530 (f) of the Tariff and Customs
Code." 20
We regret to inform you that the authority granted
to you by the Monetary Board per above-stated MB
On July 17, 1970, Deputy Governor Amado R. Briñas wrote to the
Resolution No. 2038, was intended only for the
Commissioner of customs: 21
Christmas season of 1968 and does not extend
through 1969. Furthermore, under existing
regulations, importations of fruits are covered by Since fresh fruits are classified as Non-Essential
the moratorium on the opening of letters of credit. Consumer goods, and therefore banned under
Circular No. 289 dated February 21, 1970, it is
requested that the above shipments (fresh
It so happened that two days after or on November 21 1969, Director A.
oranges, lemons and apples with total value of
V. Antiporda, of the Foreign Exchange Department of the Central Bank,
$21,763.00) be subject to appropriate seizure
wrote to Mr. Renato L. Santos, Assistant Vice-President of the Prudential
proceedings. Likewise, all other importations of
Bank and Trust Company, in reply to the letters of the latter, dated
fresh fruits now under Customs custody should be
November 14 and 19, 1969, 16 furnishing the Foreign Exchange
subjected to appropriate seizure proceedings and
Department copies of the release certificates the Prudential Bank and
any release certificates issued by the banks for
Trust Company issued to Gonzalo Sy Trading. The pertinent portion of
such importations should be disregarded.
Antiporda's letter 17 reads:

On July 30, 1970, the Collector of Customs issued a notice for the
On the basis of your report that the total value of
auction sale of the confiscated June 1970 shipment on the following
the shipments so far made by your client against
August 12. Whereupon, petitioner-appellant, along with another
the $350,000.00 grant amounts to $144,306.15
importer, Tomas Y. de Leon, commenced an injunction suit before the
only, you may continue to issue release certificates
Court of First Instance of Manila, docketed as Civil Case No. 80655,
to cover the No-Dollar importations of fresh fruits
against the Commissioner and Collector of Customs for the Port of
by your client, subject to the same and conditions
Manila. On August 26, 1970, the Manila Court of First Instance, presided
imposed by Monetary Board under the
over by trial Judge Federico C. Alikpala, ordered the release of the seized
abovementioned resolution.
goods under bonds totalling P513,865.46. However, the Commissioner
and Collector of Customs elevated the matter to this Court, seeking to
Then, on April 17, 1970, the Assistant to the Governor, Mr. Cesar have the August 26, 1970 order declared null and void. 22
Lomotan, informed the Prudential Bank and Trust Company 18 that the
authority granted to petitioner-appellant under MB Resolution No. 2038
Meanwhile, the second shipment consigned to petitioner-appellant
was intended only for the Christmas season of 1968 and does not extend
arrived at the Port of Manila on September 6 and 15, 1970. This
through 1969, enclosing therewith the letter, dated November 19, 1969,
shipment consisted of 1,000 cartons of fresh sunkist oranges, 1,000
of Deputy Governor Briñas.
cartons of fresh grapes and 100 cartons of fresh lemons, all valued at
P71,549.49. Like the June, 1970 importation, this September, 1970
On May 27, 1970, petitioner-appellant notified Mr. Cesar Lomotan that shipment was also seized by the Customs authorities.
the Prudential Bank and Trust Company refused to issue them any
release certificate for their importations due to his letter of April 17,
On September 21, 1970, petitioner-appellant instituted before the Court
1970. On June 3, 1970, petitioner-appellant sent a follow-up letter to Mr.
of First Instance of Manila the subject petition for mandamus with
Lomotan, reiterating "our request for a reconsideration on the matter
damages which was docketed as Civil Case No. 81051. This case was
and to allow us utilize the balance of our Permit in the amount of
consolidated with Civil Case No. 80655 assigned to the sala, of trial
$35,857.49." In the same letter, petitioner-appellant advised that "we
Judge Federico C. Alikpala upon motion of petitioner-appellant. 23In this
have shipments coming on June 4th and June 6th respectively which is
petition, petitioner-appellant prayed for the issuance of a writ of
within the balance of our permit."
mandamus to direct the Central Bank of the Philippines to release the
imported fruits and to provide the necessary release certificates therefor.
On June 10, 1970, Deputy Governor Amado R. Briñas wrote petitioner- Likewise, it prayed for the award of damages amounting to P838,495.28.
appellant that its request cannot be given due course, inviting attention
to the basic letter of November 19, 1969, informing it that the Special
On November 26, 1970, this Court promulgated its decision in
Import Permit was intended only for the Christmas season of 1968 and
the Alikpala case 24 sustaining the Order of August 26, 1970, ordering the
does not extend through 1969. 19
release of the June, 1970 importation upon bond, with a directive to the
importers, Gonzalo Sy Trading and Tomas Y. de Leon, to cause the
On June 5 and 16, 1970, the Collector of Customs for the Port of Manila, reinsurance of the bonds amounting to more than P340,000.00 not
Mr. Jose T. Viduya, issued warrants of seizure and detention against: covered by reinsurance or to put up other surety bonds acceptable to the
Collector of Customs. In the following month, December, 1970, the June,
1970 shipment was released to petitioner-appellant on bond.
1. 700 Cartons of Fresh Oranges, on board SS
"Taviata";
On November 27, 1971, Judge Alikpala rendered judgment in Civil Case
No. 81051 dismissing petitioner-appellant's complaint for mandamus with
2. 1,000 Cartons of Fresh Oranges, on board SS
damages and ordering the Collector of Customs to proceed with the
"Fernlake";
seizure proceedings it initiated against the June, 1970 importation and, if
favorable to the government, to enforce the same against the surety
3. 500 Cartons of Fresh Oranges, on board SS bonds of petitioner-appellant posted upon the release of the goods in
"Arizona"; December, 1970. The shipment of September, 1970 was condemned and
only the recovery of whatever charges and/or penalties against
petitioner-appellant was ordered.

From this adverse judgment, petitioner-appellant appealed to the Court
of Appeals, but the Appellate Court certified the case to Us as involving
only pure questions of law.
We rule that the Special Import Permit granted to petitioner-appellant on
November 19, 1968, allowing it to import fresh fruits from Japan on a
"no-dollar" basis, has already lost its validity when the questioned
importations of June and September, 1970 were made.
1. It is one of the first principles in the field of administrative law that a
license or a permit is not a contract between the sovereignty and the
licensee or permitee, and is not a property in any constitutional sense, as
to which the constitutional prescription against impairment of the
obligation of contracts may extend. A license is rather in the nature of a
special privilege, of a permission or authority to do what is within its
terms. 25 It is not in any way vested, permanent, or absolute. A license
granted by the State is always revocable. As a necessary consequence of
its main power to grant license or permit, the State or its
instrumentalities have the correlative power to revoke or recall the same.
And this power to revoke can only be restrained by an explicit
contract upon good consideration to that effect. 26 The absence of an
expiry date in, a license does not make it perpetual. Notwithstanding that
absence, the license cannot last beyond the life of the basic authority —
under which it was issued. 27
The series of correspondence exchanged between petitioner-appellant
and respondent-appellee in the case at bar plainly reveals that the
Special Import Permit granted to petitioner-appellant covers only the
Christmas season of 1968. As reflected in its first letter, dated September
28, 1968, the cause or the compelling reason why petitioner-appellant
sought for the Special Import Permit on No-Dollar Basis was because the
importation of fresh fruits calls for 175% Special Time Deposit for 120
days and "(w)ith the fast approaching Christmas season," petitioner-
appellant "cannot cope with the demands of [its] buyers of fresh fruits
under this requirement imposed on importers." Upon denial of its
request, petitioner-appellant explained to Deputy Governor Amado R.
Briñas in its letter of October 22, 1968 that their "..., case is a very
special one" and that "... this item of fresh apples is very much needed
in the coming Christmas season ..." Complementary to this letter,
petitioner-appellant pointed out to the Monetary Board in its letter of
November 6, 1968 that "the items called for such as apples, oranges and
grapes are perishable in nature and cannot be stored for a longer period
of time, and the main purpose of this importation is to serve the
requirements during the Christmas Season."
After the Special Import Permit was granted by the Monetary Board on
November 19, 1968, petitioner-appellant expressed its gratitude to the
then Chairman of the Monetary Board, Mr. Eduardo Romualdez, in a
letter of November 27, 1968 and, at the same time, requested that it be
allowed "to put up 20% special time deposit for 120 days instead of
100%. again pointing out that "this particular importation is only for the
Christmas season ..." It was upon all these representations and
assurances by petitioner-appellant that the Monetary Board of the
Central Bank finally issued the Special Import Permit. As a result, the
conclusion becomes inevitable that the Special Import Permit thus
granted lasts only until the Christmas Season of 1968.
The omission of an expiry date in the Special Import Permit affords no
legal basis for petitioner-appellant to conclude that the said permit is
impressed with continuous validity, i.e., not merely limited to the
Christmas season of 1968. The totality of petitioner appellant's
representations which led to the issuance of the permit cannot be lightly
glossed over. It was petitioner-appellant itself which furnished the life
span of the permit, consistently pointing out that "the main purpose of
this importation is to serve the requirements during the Christmas
Season" of 1968. In the logical sequence of things, no imperative reason
arises for the Monetary Board to still specify the expiry date of the
permit.
It would far-fetched for the Monetary Board to grant more than what
was asked for, considering that it was opposed to the granting of the
permit from the very start, in view of the existing stringent policies
against "no-dollar" importation of "non-essential consumer' goods like
fresh fruits. That is why, the Monetary Board, while it thus issued the
Special Import Permit, subjected the same to a "special time deposit of
100% which shall be held by the bank concerned for a period of 120
days as well as to the normal customs duties and taxes." This
requirement was maintained by the' Monetary Board even after
20
petitioner-appellant sought for a reconsideration thereof. Withal, it can
be gleaned that petitioner-appellant's Special Import Permit bears all the
marks of a mere special concession from the issuing authority, to the
effect that no extensive privileges are licitly inferrable from it.
Petitioner-appellant mistakenly asserts that the continuous validity of its
Special Import Permit has already been passed upon by this Court
in Commissioner of Customs v. Alikpala. 28 What was raised in that case
is the question of whether the Collector of Customs for the Port of Manila
has observed the rediments of administrative due process in ordering the
seizure and sale at public auction of petitioner-appellant's imported
goods in particular that arrived in June, 1970, as well as the question of
the legality of the Collector's order requiring only cash bond, surety bond
not accepted, for the release of the goods. The Court made no ruling on
the continuity of petitioner-appellant's Special Import Permit after the
Christmas season of 1968.
Petitioner-appellant's referral 29 to the statement of the Court that the
November 21, 1969 letter of Mr. A. V. Antiporda, Director of the Foreign
Exchange Department, authorized the Prudential Bank and Trust
Company to 94 continue to issue release certificates to cover the No-
Dollar importations of fresh fruits by your client" misses the preceding
prefatory statement of the Court in regard to the details of the case,
thus: "For a proper understanding and resolution of the issues it is
necessary to state the facts in greater detail, as they appear from the
pleadings and memoranda submitted by the parties as well as from the
different documents attached thereto marked as annexes." In other
words, the subsequent statement of the Court on the Antiporda letter is
but a portion of its recital of the facts involved without necessarily
making a resolution thereon.
2. Controversy rises between petitioner-appellant and respondent-
appellee on the receipt of Deputy Governor Briñas letter, dated
November 19, 1969, purportedly informing petitioner-appellant that its
Special Import Permit "was intended only for Christmas season of 1968
and does not extend through 1969." While petitioner-appellant contends
that the said letter was never served upon it, respondent-appellee
maintains that it is quite surprising for petitioner-appellant to disclaim
receipt thereof when all prior and subsequent letters from the Central
Bank have been satisfactorily received by it. This question is not of
decisive import. The all-governing point is the reasonable assumptions of
petitioner-appellant's knowledge or awareness of the duration of its
Special Import Permit, since it was petitioner-appellant itself which
established the terminal date of its permit representing that "the main
purpose of this importation is to serve the requirements during the
Christmas season" of 1968, upon which representationthe Monetary
Board finally granted the permit. The equitable principle of estoppel
forbids petitioner-appellant from taking an inconsistent position now and
claims that the permit extends beyond the period it itself asked for.
Where conduct or representation has induced another to change its
position in good faith or the same is such that reasonable man would
rely thereon, the consequences of such conduct or representation cannot
later on be disowned. 30 The preliminary representations and assurances
of petitioner-appellant, most important of which is the life span of the
permit, are deemed incorporated into the Special Import Permit
subsequently issued. At most, the letter of Deputy Governor Briñas may
serve only to remind petitioner-appellant of the resolutory period of its
permit. Whether there was such letter or not, the time limit proffered by
petitioner-appellant and approved by the Central Bank controls.
3. The doctrine of "promissory estoppel" is invoked by, petitioner-
appellant to preclude respondent-appellee from contesting the legality of
its importations. Petitioner-appellant draws authority from the letter of
Director A. V. Antiporda, dated November 21, 1969, informing the
Prudential Bank and Trust Company that it "may continue to issue
release certificates to cover the No-Dollar Importations of fresh fruits by
your client" after noting that only $144,306.15 has been utilized out of
the $350,000.00-permit. According to that doctrine, "an estoppel may
arise from the making of a promise even though without consideration, if
it was intended that the promise should be relied upon and in fact it was
relied upon, and if a refusal to enforce it would be virtually to sanction
the perpetration of fraud or would result in other injustice." 31 Like the
related principles of volenti non fit injuria (consent to injury), waiver, and
acquiescence, it finds its origin generally in the equitable notion that one
may not change his position and profit from his own wrongdoing when
he has caused another to suffer a detriment by relying on his
former promises or representations. 32

But, a promise cannot be the basis of an estoppel if any other essential
element is lacking. Justifiable reliance or irreparable detriment to the
promises are requisite factors. 33 We failed to see in Antiporda's letter
the making of a promise upon which petitioner-appellant
could justifiably rely. On the contrary, while the letter advised the agent
bank that it may continue issuing release certificates to cover petitioner-
appellant's "no-dollar" importations of fresh fruits, it at the same time
subjects the issuance of release certificates "to the same terms and
conditions imposed by the Monetary board" on the Special Import
Permit, one of which is the resolutory term of 1968. That is the import of
the Antiporda's letter ex vi termini. Director Antiporda could not have
modified the Special Import Permit by creating a longer period, for the
plain reason that no such authority resides in him. An administrative
officer has only such powers as are expressly granted to him and those
necessarily implied in the exercise thereof. 34 As earlier pointed out, it
was the Monetary Board which issued the permit; correspondingly, it too
posseses the sole power to modify the same.
On the gratuitous assumption that the Antiporda's letter purported to
impress, albeit erroneously, that further importations could be made by
petitioner-appellant beyond the Christmas season of 1968, the same
produces no estoppel against the issuing authority. The long- settled
jurisprudence states that the "doctrine of estoppel" does not operate
against the Government, of which the Central Bank is an instrumentality,
in its capacity as sovereign or asserting governmental rights; the
Government is never estopped by the mistake or errors on the part of its
agents. Moreover, estoppel cannot give validity to an act that is
prohibited by law or against public policy. 35 The erroneous application of
the statute and enforcement of the law do not block subsequent correct
application thereof 36 or bar a future action in accordance with law. 37 To
hold that merely the Antiporda's letter could be the basis for such
estoppel would be going in the direction of suspending and repealing the
conditions or terms of the Special Import Permit without any action on
the part of the Monetary Board. 38
4. The cases of Ramos v. Central Bank 39 and Commissioner of Customs
v. Auyong Hian 40 cannot be relied upon by petitioner-appellant to fore
close the issue on the continuous validity of its Special Import Permit.
In Ramos, the Court held that after the Central Bank has made express
commitments to petitioners therein that it would support the Overseas
Bank of Manila, and avoid its liquidation if the petitioners would execute
(a) the Voting Trust Agreement turning over the management of OBM to
the CB or its nominees, and (b) mortgage or assign their properties to
the Central Bank to cover the overdraft balance of OBM which petitioners
did, the. Central Bank may not retreat from its representations and
liquidate the Overseas Bank of Manila, to the prejudice of petitioners,
depositors and other creditors, under the rule of "promissory estoppel."
The Central Bank cannot just unilaterally disregard its representations
and promises to rehabilitate and normalize the financial condition of the
OBM without violating Article 1159 of the Civil Code of the Philippines,
which provides that "(o)bligations arising from contractshave the force of
law between the contracting parties and should be complied with in good
faith," as well as Article 1315, stating that "(c)ontracts are perfected by
mere consent, and from that moment the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with
good faith, usage and law." In other words, by making the foregoing
representations and commitments to the OBM the Central Bank had
thereby assumed a contractual obligation in favor of the OBM such that it
cannot unceremoniously ignore the same. No such kind of contractual
obligation or commitments have been perfected between the Central
Bank and the petitioner-appellant in the present case. The issuance of
the Special Import Permit by the Monetary Board to the petitioner-
appellant can hardly be considered as constitutive of a contractual
obligation assumed by the Central Bank in favor of petitioner-appellant.
This is because a permit is not, by its very nature, a contract but a mere
special privilege. For a permit to be impressed with a contractual
character, it must be categorically demonstrated that the very
administrative agency, which is the source of the permit, would place
such a burden on itself.41 Auyong Hian on the other hand, tells of an
importation of old newspapers in four shipments under a "no-dollar"
arrangement, pursuant to a license issued by the Import Control
Commission. When the last shipment arrived in Manila, the Customs
authorities seized the same on the ground that the importation was
made without the license required under Central Bank Circular No.
45. 42 While the seizure proceedings were pending before the Collector of
Customs, the President of the Philippines, acting through its
Cabinet, cancelled the aforesaid license for the reason that it was
illegally issued "in that no fixed date of expiration is stipulated." On
review, the Court held that the cancellation of the license on the sole
ground that it does not bear ay expiry date even if the importation had
21
already been accomplished was inequitable. In the present case,
however, no such cancellation of license or permit appears the legality of
the issuance of petitioner-appellant's Special Import Permit is not in
question. On the contrary, what is being sought in this case is
the enforcement of the terms and conditions of the Special Import
Permit, one of which, is the resolutory period of 1968. As earlier
discussed, after the lapse of this period, the permit can no longer yield
valid effect.
5. The authority of the Central Bank to regulate "no-dollar" imports,
owing to the influence and effect that the same may exert upon the
stability of our peso and its international value, cannot be seriously
contested. Such authority clearly emanates from its broad powers to
maintain our monetary stability and to preserve the international value of
our currency 43 as well as its corollary power to issue such rules and
regulations for the effective discharge of its responsibilities and exercise
of powers. 44 On February 31, 1970, the Central Bank promulgated its
Circular No. 269, prohibiting the importation of "non-essential consumer"
goods like fresh fruits. Section 5 thereof directs that "(a)uthorized agent
banks may sell foreign exchange for imports except those falling under
the UC, SUC and NECcategories, without prior specific approval of the
Central Bank." In the recent case of Balmaceda vs. Corominas 45We ruled
that "the entry of NEC ("non-essential commodities") is thus halted at
bay." With regard to "no- dollar" imports, the Central Bank promulgated
Circular No. 247 on July 21, 1967, specifically enumerating the items
exempted from the requirement of release certificates. The enumeration
mostly refers to personal effects and gifts of returning residents, tourists,
immigrants, etc. Fresh fruits are not included. Circular No. 247 was
amended by Circular No. 294 on March 10, 1970, providing that "(n)o-
dollar imports not covered by Circular No. 247 shall not be issued any
release certificates and shall be referred to the Central Bank for
official transmittal to the Bureau of Customs for appropriate seizure
proceedings. " On March 20, 1970, Circular No. 295 was passed. This
circular reiterates the exemption of the "no-dollar" imports enumerated
under Circular No. 247 from the release certificate requirements, but
imposes an express ban on all other "no-dollar" imports not covered by
Circular No. 247. These include "fresh fruits" like fresh apples oranges,
grapes, and lemons. 46 It can thus be readily seen that petitioner-
appellant's "fresh fruits" importations of June and September, 1970
violate the quoted Central Bank Circulars, hence, liable to seizure action
by the Customs authorities. While the said goods may not be considered
"merchandise of prohibited importation," they nevertheless fall within the
other category of merchandise imported "contrary to law", because
regulations issued pursuant to "customs law" form part thereof. The term
"customs law" includes not only the provisions of said law proper but
also any regulations made pursuant thereto like the aforementioned
Central Bank circulars, 47 which also have the force and effect of
law. 48 Consequently, violation of these circulars comes within the
purview of Section 2530 (f) of the Tariff and Customs Code, which
authorizes the forfeiture of "(a)ny article the importation or exportation
of which is effected or attempted contrary to law." 49
6. Petitioner-appellant disputes the disposition of the trial court directing
the Collector of Customs to proceed against the surety bonds it posted
for the release of its June, 1970 importation sometime in December,
1970. There is no doubt that the surety bonds were posted by petitioner-
appellant in Civil Case No. 80655, which was terminated by the mutual
agreement of the parties 50 after the Court has handed down its decision
thereon on appeal. 51 However, it must be remembered that the said
surety bonds were undertaken by petitioner-appellant for the release of
its June, 1970 importation. A fortiori in any litigation where in any
litigation where the release of this June, 1970 shipment is involved, the
said surety bonds are answerable.
The statutory undertaking of a bond is to answer for all damages that
may result from an injunction should the court finally decide that the
injunction was not proper or that the party in whose favor the injunctive
writ was issued was not entitled thereto. 52 Although petitioner-
appellant's surety bonds were filed in Civil Case No. 80655, the
undertaking therein to answer for damages in case the release of the
June, 1970 shipment is found improper attaches to the present case,
Civil Case No. 81051. The case where the Surety bonds were posted is
but incidental. The all-important factor to consider is the event or judicial
action secured by the bonds. Since the surety bonds in question were
intended to secure the liabilities which petitioner-appellant may incur for
the release of its June, 1970 importation, the said bonds can be
proceeded against in any case where the propriety of impropriety of said
release has been resolved. The bonds become immediately answerable
for the undertaking once this condition has occurred. 53
 22

It would be a useless expense of judicial time and effort if the surety

bonds were yet to be litigated in another suit just to enforce the
undertaking therein. This is specially true when the sufficiency or
solvency of the bonds has been previously passed upon by the same trial
judge hearing the second case. Besides, Civil Case No. 80655 has already
been terminated by the mutual agreement of the parties such that no
enforcement of the undertaking of the bonds could be easily made
therein. 54

ACCORDINGLY, the judgment of the lower court, subject matter of this

present review, is hereby affirmed. Costs against petitioner-appellant.

SO ORDERED.

G.R. No. 91636 April 23, 1992
PETER JOHN D. CALDERON, petitioner,
vs.
BARTOLOME CARALE, in his capacity as Chairman of the
National Labor Relations Commission, EDNA BONTO PEREZ,
LOURDES C. JAVIER, ERNESTO G. LADRIDO III, MUSIB M. BUAT,
DOMINGO H. ZAPANTA, VICENTE S.E. VELOSO III, IRENEO B.
BERNARDO, IRENEA E. CENIZA, LEON G. GONZAGA, JR., ROMEO
B. PUTONG, ROGELIO I. RAYALA, RUSTICO L. DIOKNO,
BERNABE S. BATUHAN and OSCAR N. ABELLA, in their capacity
as Commissioners of the National Labor Relations Commission,
and GUILLERMO CARAGUE, in his capacity as Secretary of
Budget and Management, respondents.
PADILLA, J.:
Controversy is focused anew on Sec. 16, Art. VII of the 1987 Constitution
which provides:
Sec. 16. The President shall nominate and, with the consent of the
Commission on Appointments, appoint the heads of the executive
departments, ambassadors, other public ministers and consuls, or
officers of the armed forces from the rank of colonel or naval
captain, and other officers whose appointments are vested in him
in this Constitution. He shall also appoint all other officers of the
Government whose appointments are not otherwise provided for
by law, and those whom he may be authorized by law to appoint.
The Congress may, by law, vest the appointment of other officers
lower in rank in the President alone, in the courts, or in the heads
of departments, agencies, commissions, or boards.
The President shall have the power to make appointments during
the recess of the Congress, whether voluntary or compulsory, but
such appointments shall be effective only until disapproval by the
Commission on Appointments or until the next adjournment of the
Congress. 1
The power of the Commission on Appointments (CA for brevity) to
confirm appointments, contained in the aforequoted paragraph 1 of Sec.
16, Art. VII, was first construed in Sarmiento III vs. Mison 2 as follows:
. . . it is evident that the position of Commissioner of the Bureau
of Customs (a bureau head) is not one of those within the first
group of appointments where the consent of the Commission on
Appointments is required. As a matter of fact, as already pointed
out, while the 1935 Constitution includes "heads of bureaus"
among those officers whose appointments need the consent of
the Commission on Appointments, the 1987 Constitution, on the
other hand, deliberately excluded the position of "heads of
bureaus" from appointments that need the consent (confirmation)
of the Commission on Appointments.
. . . Consequently, we rule that the President of the Philippines
acted within her constitutional authority and power in appointing
respondent Salvador Mison, Commissioner of the Bureau of
Customs, without submitting his nomination to the Commission on
Appointments for confirmation. . . .
. . . In the 1987 Constitution, however, as already pointed
out, the clear and expressed intent of its framers was to exclude
presidential appointments from confirmation by the Commission
on Appointments, except appointments to offices expressly
mentioned in the first sentence of Sec. 16, Art.VII. Consequently,
there was no reason to use in the third sentence of Sec. 16,
Article VII the word "alone" after the word "President" in providing
that Congress may by law vest the appointment of lower-ranked
officers in the President alone, or in the courts, or in the heads of
departments, because the power to appoint officers whom he (the
president) may be authorized by law to appoint is already vested
in the President, without need of confirmation by the Commission
on Appointments, in the second sentence of the same Sec. 16,
Article VII." (emphasis supplied)
23
Next came Mary Concepcion Bautista v. Salonga, 3 this time involving the
appointment of the Chairman of the Commission on Human Rights.
Adhering to the doctrine in Mison, the Court explained:
. . . Since the position of Chairman of the Commission on Human
Rights is not among the positions mentioned in the first sentence
of Sec. 16, Art. VII of the 1987 Constitution, appointments to
which are to be made with the confirmation of the Commission
on Appointments, it follows that the appointment by the
President of the Chairman of the CHR is to be made without the
review or participation of the Commission on Appointments. To
be more precise, the appointment of the Chairman and Members
of the Commission on Human Rights is not specifically provided
for in the Constitution itself, unlike the Chairmen and Members
of the Civil Service Commission, the Commission on Elections
and the Commission on Audit, whose appointments are expressly
vested by the Constitution in the president with the consent of
the Commission on Appointments. The president appoints the
Chairman and Members of The Commission on Human Rights
pursuant to the second sentence in Section 16, Art. VII, that is,
without the confirmation of the Commission on Appointments
because they are among the officers of government "whom he
(the President) may be authorized by law to appoint." And
Section 2(c), Executive Order No. 163, 5 May 1987, authorizes
the President to appoint the Chairman and Members of the
Commission on Human Rights.
Consistent with its rulings in Mison and Bautista, in Teresita Quintos
Deles, et al. v. The Commission on Constitutional Commissions, et
al.,4 the power of confirmation of the Commission on Appointments over
appointments by the President of sectoral representatives in Congress
was upheld because:
. . . Since the seats reserved for sectoral
representatives in paragraph 2, Section 5, Art. VI
may be filled by appointment by the President by
express provision of Section 7, Art. XVIII of the
Constitution, it is indubitable that sectoral
representatives to the House of Representatives
are among the "other officers whose appointments
are vested in the President in this Constitution,"
referred to in the first sentence of Section 16, Art.
VII whose appointments are subject to
confirmation by the Commission on Appointments.
From the three (3) cases above-mentioned, these doctrines are
deducible:
1. Confirmation by the Commission on Appointments is required only for
presidential appointees mentioned in the first sentence of Section 16,
Article VII, including, those officers whose appointments are expressly
vested by the Constitution itself in the president (like sectoral
representatives to Congress and members of the constitutional
commissions of Audit, Civil Service and Election).
2. Confirmation is not required when the President appoints other
government officers whose appointments are not otherwise provided for
by law or those officers whom he may be authorized by law to appoint
(like the Chairman and Members of the Commission on Human Rights).
Also, as observed in Mison, when Congress creates inferior offices but
omits to provide for appointment thereto, or provides in an
unconstitutional manner for such appointments, the officers are
considered as among those whose appointments are not otherwise
provided for by law.
Sometime in March 1989, RA 6715 (Herrera-Veloso Law), amending the
Labor Code (PD 442) was approved. It provides in Section 13 thereof as
follows:
xxx xxx xxx
The Chairman, the Division Presiding
Commissioners and other Commissioners shall all
be appointed by the President, subject to
confirmation by the Commission on Appointments.

Appointments to any vacancy shall come from the
nominees of the sector which nominated the
predecessor. The Executive Labor Arbiters and
Labor Arbiters shall also be appointed by the
President, upon recommendation of the Secretary
of Labor and Employment, and shall be subject to
the Civil Service Law, rules and regulations. 5
Pursuant to said law (RA 6715), President Aquino appointed the
Chairman and Commissioners of the NLRC representing the public,
workers and employers sectors. The appointments stated that the
appointees may qualify and enter upon the performance of the duties of
the office. After said appointments, then Labor Secretary Franklin Drilon
issued Administrative Order No. 161, series of 1989, designating the
places of assignment of the newly appointed commissioners.
This petition for prohibition questions the constitutionality and legality of
the permanent appointments extended by the President of the
Philippines to the respondents Chairman and Members of the National
Labor Relations Commission (NLRC), without submitting the same to the
Commission on Appointments for confirmation pursuant to Art. 215 of
the Labor Code as amended by said RA 6715.
Petitioner insists on a mandatory compliance with RA 6715 which has in
its favor the presumption of validity. RA 6715 is not, according to
petitioner, an encroachment on the appointing power of the executive
contained in Section 16, Art. VII, of the Constitution, as Congress may,
by law, require confirmation by the Commission on Appointments of
other officers appointed by the President additional to those mentioned
in the first sentence of Section 16 of Article VII of the Constitution.
Petitioner claims that the Mison and Bautista rulings are not decisive of
the issue in this case for in the case at bar, the President issued
permanent appointments to the respondents without submitting them to
the CA for confirmation despite passage of a law (RA 6715) which
requires the confirmation by the Commission on Appointments of such
appointments.
The Solicitor General, on the other hand, contends that RA 6715 which
amended the Labor Code transgressesSection 16, Article VII by
expanding the confirmation powers of the Commission on Appointments
without constitutional basis. Mison and Bautista laid the issue to rest,
says the Solicitor General, with the following exposition:
As interpreted by this Honorable Court in the Mison case,
confirmation by the Commission on Appointments is required
exclusively for the heads of executive departments, ambassadors,
public ministers, consuls, officers of the armed forces from the
rank of colonel or naval captain, and other officers whose
appointments are vested in the President by the Constitution, such
as the members of the various Constitutional Commissions. With
respect to the other officers whose appointments are not
otherwise provided for by the law and to those whom the
President may be authorized by law to appoint, no confirmation by
the Commission on Appointments is required.
Had it been the intention to allow Congress to expand the list of
officers whose appointments must be confirmed by the
Commission on Appointments, the Constitution would have said so
by adding the phrase "and other officers required by law" at the
end of the first sentence, or the phrase, "with the consent of the
Commission on Appointments" at the end of the second sentence.
Evidently, our Constitution has significantly omitted to provide for
such additions.
The original text of Section 16 of Article VII of the present
Constitution as embodied in Resolution No. 517 of the
Constitutional Commission reads as follows:
"The President shall nominate and, with the consent of the
Commission on Appointments, shall appoint the heads of the
executive departments and bureaus, ambassadors, other public
ministers and consuls, or officers of the armed forces from the
rank of captain or commander, and all other officers of the
Government whose appointments are not herein otherwise
provided for by law, and those whom he may be authorized by
law to appoint. The Congress may by law vest the appointment
24
of inferior officers in the President alone, in the courts or in the
heads of the department."
Three points should be noted regarding sub-section 3 of Section
10 of Article VII of the 1935 Constitution and in the original text
of Section 16 of Article VII of the present Constitution as
proposed in Resolution No. 517.
First, in both of them, the appointments of heads of bureaus
were required to be confirmed by the Commission on
Appointments.
Second, in both of them, the appointments of other officers,
"whose appointments are not otherwise provided for by law to
appoint" are expressly made subject to confirmation by the
Commission on Appointments. However, in the final version of
Resolution No. 517, as embodied in Section 16 of Article VII of
the present Constitution, the appointment of the above
mentioned officers (heads of bureaus; other officers whose
appointments are not provided for by law; and those whom he
may be authorized by law to appoint) are excluded from the list
of those officers whose appointments are to be confirmed by the
Commission on Appointments. This amendment, reflected in
Section 16 of Article VII of the Constitution, clearly shows the
intent of the framers to exclude such appointments from the
requirement of confirmation by the Commission on
Appointments.
Third, under the 1935 Constitution the word "nominate" qualifies
the entire Subsection 3 of Section 10 of Article VII thereof.
Respondent reiterates that if confirmation is required, the three
(3) stage process of nomination, confirmation and appointment
operates. This is only true of the first group enumerated in
Section 16, but the word nominate does not any more appear in
the 2nd and 3rd sentences. Therefore, the president's
appointment pursuant to the 2nd and 3rd sentences needs no
confirmation. 6
The only issue to be resolved by the Court in the present case is whether
or not Congress may, by law, require confirmation by the Commission on
Appointments of appointments extended by the president to government
officers additional to those expressly mentioned in the first sentence of
Sec. 16, Art. VII of the Constitution whose appointments require
confirmation by the Commission on Appointments.
To resolve the issue, we go back to Mison where the Court stated:
. . . there are four (4) groups of officers whom the President
shall appoint. These four (4) groups, to which we will hereafter
refer from time to time, are:
First, the heads of the executive departments, ambassadors,
other public ministers and consuls, officers of the armed
forces from the rank of colonel or naval captain, and other
officers whose appointments are vested in him in this
Constitution;
Second, all other officers of the Government whose
appointments are not otherwise provided for by law;
Third, those whom the president may be authorized by law
to appoint;
Fourth, officers lower in rank whose appointments the
Congress may by law vest in the President alone. 7
Mison also opined:
In the course of the debates on the text of Section
16, there were two (2) major changes proposed
and approved by the Commission. These were (1)
the exclusion of the appointments of heads of
bureaus from the requirement of confirmation by

the Commission on Appointments; and (2) the
exclusion of appointments made under the second
sentence of the section from the same
requirement. . . .
The second sentence of Sec. 16, Art. VII refers to all other officers of the
government whose appointments are not otherwise provided for by law
and those whom the President may be authorized by law to appoint.
Indubitably, the NLRC Chairman and Commissioners fall within the
second sentence of Section 16, Article VII of the Constitution, more
specifically under the "third groups" of appointees referred to in Mison,
i.e. those whom the President may be authorized by law to appoint.
Undeniably, the Chairman and Members of the NLRC are not among the
officers mentioned in the first sentence of Section 16, Article VII whose
appointments requires confirmation by the Commission on Appointments.
To the extent that RA 6715 requires confirmation by the Commission on
Appointments of the appointments of respondents Chairman and
Members of the National Labor Relations Commission, it is
unconstitutional because:
1) it amends by legislation, the first sentence of Sec. 16, Art. VII of the
Constitution by adding thereto appointments requiring confirmation by
the Commission on Appointments; and
2) it amends by legislation the second sentence of Sec. 16, Art. VII of
the Constitution, by imposing the confirmation of the Commission on
Appointments on appointments which are otherwise entrusted only with
the President.
Deciding on what laws to pass is a legislative prerogative. Determining
their constitutionality is a judicial function. The Court respects the
laudable intention of the legislature. Regretfully, however, the
constitutional infirmity of Sec. 13 of RA 6715 amending Art. 215 of the
Labor Code, insofar as it requires confirmation of the Commission on
Appointments over appointments of the Chairman and Member of the
National Labor Relations Commission (NLRC) is, as we see it, beyond
redemption if we are to render fealty to the mandate of the Constitution
in Sec. 16, Art. VII thereof.
Supreme Court decisions applying or interpreting the Constitution shall
form part of the legal system of the Philippines.8 No doctrine or principle
of law laid down by the Court in a decision rendered en banc or in
division may be modified or reversed except by the Court sitting en
banc.9
. . . The interpretation upon a law by this Court
constitutes, in a way, a part of the law as of the
date that law was originally passed, since this
Court's construction merely establishes the
contemporaneous legislative intent that the law
thus construed intends to effectuate. The settled
rule supported by numerous authorities is a
restatement of the legal maxim "legis interpretado
legis vim obtinent" — the interpretation placed
upon the written law by a competent court has the
force of law. 10
The rulings in Mison, Bautista and Quintos-Deles have interpreted Art.
VII, Sec. 16 consistently in one manner. Can legislation expand a
constitutional provision after the Supreme Court has interpreted it?
In Endencia and Jugo vs. David, 11
the Court held:
By legislative fiat as enunciated in Section 13,
Republic Act No. 590, Congress says that taxing
the salary of a judicial officer is not a decrease of
compensation. This is a clear example of
interpretation or ascertainment of the meaning of
the phrase "which shall not be diminished during
their continuance in office," found in Section 9,
Article VIII of the Constitution, referring to the
salaries of judicial officers.
xxx xxx xxx
25
The rule is recognized
elsewhere that the legislature
cannot pass any declaratory
act, or act declaratory of
what the law was before its
passage, so as to give it any
binding weight with the
courts. A legislative definition
of a word as used in a statute
is not conclusive of its
meaning as used elsewhere;
otherwise, the legislature
would be usurping a judicial
function in defining a term.
(11 Am. Jur., 914, emphasis
supplied).
The legislature cannot, upon
passing law which violates a
constitutional provision,
validate it so as to prevent an
attack thereon in the courts,
by a declaration that it shall
be so construed as not to
violate the constitutional
inhibition. (11 Am., Jur., 919,
emphasis supplied).
We have already said that the Legislature under
our form of government is assigned the task and
the power to make and enact laws, but not to
interpret them. This is more true with regard to the
interpretation of the basic law, the Constitution,
which is not within the sphere of the Legislative
department. If the Legislature may declare what a
law means, or what a specific portion of the
Constitution means, especially after the courts
have in actual case ascertained its meaning by
interpretation and applied it in a decision, this
would surely cause confusion and instability in
judicial processes and court decisions. Under such
a system, a final court determination of a case
based on a judicial interpretation of the law or of
the Constitution may be undermined or even
annulled by a subsequent and different
interpretation of the law or of the Constitution by
the Legislative department that would be neither
wise nor desirable, being clearly violative of the
fundamental principles of our constitutional system
of government, particularly those governing the
separation of powers. 14(Emphasis supplied)
Congress, of course, must interpret the Constitution, must estimate the
scope of its constitutional powers when it sets out to enact legislation
and it must take into account the relevant constitutional prohibitions. 15
. . . The Constitution did not change with public
opinion.
It is not only the same words, but the same in
meaning . . . and as long as it it speaks not only in
the same words, but with the same meaning and
intent with which it spoke when it came from the
hands of its framers, and was voted and adopted
by the people . . . 16
The function of the Court in passing upon an act of Congress is to "lay
the article of the Constitution which is invoked beside the statute which
is challenged and to decide whether the latter squares with the former"
and to "announce its considered judgment upon the question." 17
It can not be overlooked that Sec. 16, Art. VII of the 1987 Constitution
was deliberately, not unconsciously, intended by the framers of the 1987
Constitution to be a departure from the system embodied in the 1935
Constitution where the Commission on Appointments exercised the
power of confirmation over almost all presidential appointments, leading
to many cases of abuse of such power of confirmation. Subsection 3,
Section 10, Art. VII of the 1935 Constitution provided:
 26

3. The President shall nominate and with the

consent of the Commission on Appointments, shall
appoint the heads of the executive departments
and bureaus, officers of the Army from the rank of
colonel, of the Navy and Air Forces from the rank
of captain or commander, and all other officers of
the Government whose appointments are not
herein otherwise provided for, and those whom he
may be authorized by law to appoint; . . .

The deliberate limitation on the power of confirmation of the Commission

on Appointments over presidential appointments, embodied in Sec. 16,
Art. VII of the 1987 Constitution, has undoubtedly evoked the
displeasure and disapproval of members of Congress. The solution to the
apparent problem, if indeed a problem, is not judicial or legislative but
constitutional. A future constitutional convention or Congress sitting as a
constituent (constitutional) assembly may then consider either a return
to the 1935 Constitutional provisions or the adoption of a hybrid system
between the 1935 and 1987 constitutional provisions. Until then, it is the
duty of the Court to apply the 1987 Constitution in accordance with what
it says and not in accordance with how the legislature or the executive
would want it interpreted.

WHEREFORE, the petition is DISMISSED. Art. 215 of the Labor Code as

amended by RA 6715 insofar as it requires the confirmation of the
Commission on Appointments of appointments of the Chairman and
Members of the National Labor Relations Commission (NLRC) is hereby
declared unconstitutional and of no legal force and effect.

SO ORDERED.
 27

G.R. No. L-2181 April 30, 1966
ARMANDO ESPERANZA, petitioner,
vs.
ANDRES CASTILLO, in his official capacity as Governor of the
Central Bank; ZENON V. SEBASTIAN, BIENVENIDO D. RUIZ,
EMILIANO A. TAN CHICO, in their official capacity as Chairman
and Members of the Investigating Committee; and ABELARDO
SUBIDO, as Acting Commissioner of Civil Service, respondents.
Juan T. David, for appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General
Pacifico P. de Castro, Solicitor F. J. Bautista and R. R. Villones for
appellee Commissioner of Civil Service.
Natalio M. Balboa, F. E. Evangelista, J. C. Guerrero and S. V. Reyes for
appellee Central Bank of the Philippines.
CONCEPCION, J.:
Monetary Board to create such an investigating committee, upon the
ground that said Board "may be regarded as a department head" as
regards the Central Bank. Our decision in said case does not necessarily
negate, however, that the Governor of the Central Bank is, in fact or in
effect, its department head. Indeed, the charter of the Central Bank
(Republic Act No. 265) explicitly provides4 that the "Governor of the
Central Bank shall be the principal representative of the Monetary Board
and of the Bank", and that5 he "shall be the chief executive of the
Central Bank" with authority inter alia "to direct and supervise the
operations and internal administration" of the Bank. It is obvious that,
whereas the functions of the Monetary Board may be compared to those
of the Board of Directors of a corporation, the role of the Governor of the
Central Bank may, in turn, be likened to that of president and general
manager of such corporation, with the duties and responsibilities of a
department head of the government. In fact, the Governor's duty to
direct and supervise the operations and internal administration of the
bank logically entails the power to prefer charges against erring officials
of the Bank and to see to it that said charges are properly investigated,
this being an intrinsic element of the internal administration of said
institution.1äwphï1.ñët

This is an appeal from a decision of the Court of First Instance of Manila, Wherefore, the decision appealed from is hereby affirmed, with costs
dismissing the petition for certiorari filed by herein appellant, Armando against the petitioner. It is so ordered.
Esperanza.

The latter was, on December 29, 1953 appointed janitor-messenger of

the Central Bank and had performed his duties as such thereafter. On
October 13 and 27, 1961, he received from Mario P. Marcos, as officer-
in-charge of the Central Bank,1 two, (2) letters referring to him
(Esperanza) several official communications from other officers of the
government imputing to him dishonesty and violation of regulations and
requiring him to show cause why disciplinary action should not be taken
against him. No explanation having been forthcoming from Esperanza
within the period given him therefor, on November 9, 1961, Mr. Marcos
formally charged him with dishonesty and violation of regulations, as set
forth in the aforementioned communications. Soon thereafter, or on
November 24, 1963, Mr. Marcos designated Zenon B. Sebastian, as
chairman, and Bienvenido D. Ruiz and Emilio A. Tan Chico, as members
of a committee to investigate the charges against Esperanza, who was
suspended on December 18, 1961. On the same date, he moved to
dismiss the administrative complaint against him upon the ground that
the same was not sworn to by complainant Marcos. This motion having
been denied by said Committee, Esperanza sought a reconsideration, to
no avail. Esperanza appealed to the Commissioner of Civil Service, who
sustained the action taken by the committee. As the Commissioner of
Civil Service refused to reconsider his view thereon, Esperanza instituted
the present action for certiorari with preliminary injunction against the
Central Bank Governor, the chairman and members of said investigating
committee and the Commissioner of Civil Service, with the result stated
in the opening paragraph of this decision.

Petitioner-appellant maintains that the administrative proceeding against

him should be quashed because the formal complaint filed by Mario P.
Marcos, as officer-in-charge of the Central Bank, is not sworn to and
because, although, as such officer-in-charge, he had all the authority of
the Central Bank Governor, insofar, at least, as the administrative
charges against the petitioner are concerned, the Governor of the Central
Bank, petitioner claims, does not perform the role of a department head.

The first issue has been adversely decided by this Court in several cases,
particularly, in Bautista vs. Negado, L-14319 (May 26, 1960), Castillo vs.
Bayona, L-14375 (January 30, 1960), and Pastoriza vs. Division
Superintendent of Schools, L-14233 (September 23, 1959), in which we
held that an administrative complaint filed by the head of a department
or office, pursuant to Executive Order No. 370, series of 1941, 2 need not
be sworn to, despite the proviso in Section 32 of Republic Act No. 2260,
to the effect that "no complaint against a civil service official or employee
shall be given due course unless the same is in writing and subscribed
and sworn to by the complainant."

In connection with the operation of said Executive Order No. 370 and the
authority to create committees to investigate administrative charges
under Section 79(c) of the Revised Administrative Code 3 it is urged,
however, that the Central Bank Governor —and, hence, the officer-in-
charge of the Central Bank — is not a department head, insofar as the
Bank is concerned, because this role, petitioner alleges, is vested by law
in the Monetary Board. In support of this pretense, petitioner
cites Castillo vs. Bayona, supra, in which we upheld tire authority of the

G.R. No. 111243 May 25, 1994
JESUS ARMANDO A.R. TARROSA, petitioner,
vs.
GABRIEL C. SINGSON and HON. SALVADOR M. ENRIQUEZ
III, respondents
Marlon B. Llaunder for petitioner.
QUIASON, J.:
This is a petition for prohibition filed by petitioner as a "taxpayer,"
questioning the appointment of respondent Gabriel Singson as Governor
of the Bangko Sentral Ng Pilipinas for not having been confirmed by the
Commission on Appointments. The petition seeks to enjoin respondent
Singson from the performance of his functions as such official until his
appointment is confirmed by the Commission on Appointments and
respondent Salvador M. Enriquez, Secretary of Budget and Management,
from disbursing public funds in payment of the salaries and emoluments
of respondent Singson.
I Acosta v. Flor, 5 Phil. 18 [1905]).
Respondent Singson was appointed Governor of the Bangko Sentral by
President Fidel V. Ramos on July 2, 1993, effective on July 6, 1993
(Rollo, p. 10).
Petitioner argues that respondent Singson's appointment is null and void
since it was not submitted for confirmation to the Commission on
Appointments. The petition is anchored on the provisions of Section 6 of
R.A. No. 7653, which established the Bangko Sentral as the Central
Monetary Authority of the Philippines. Section 6, Article II of R.A. No.
7653 provides:
Sec. 6. Composition of the Monetary Board. The
powers and functions of the Bangko Sentral shall
be exercised by the Bangko Sentral Monetary
Board, hereafter referred to as the Monetary Board,
composed of seven (7) members appointed by the
President of the Philippines for a term of six (6)
years.
The seven (7) members are:
(a) The Governor of the Bangko Sentral, who shall
be the Chairman of the Monetary Board. The
Governor of the Bangko Sentral shall be head of a
department and his appointment shall be subject
to confirmation by the Commission on
Appointments. Whenever the Governor is unable to
attend a meeting of the Board, he shall designate a
Deputy Governor to act as his alternate: Provided,
That in such event, the Monetary Board shall
designate one of its members as acting
Chairman . . . (Emphasis supplied).
In their comment, respondents claim that Congress exceeded its
legislative powers in requiring the confirmation by the Commission on
Appointments of the appointment of the Governor of the Bangko Sentral.
They contend that an appointment to the said position is not among the
appointments which have to be confirmed by the Commission on
Appointments, citing Section 16 of Article VII of the Constitution which
provides that:
Sec. 16. The President shall nominate and, with the
consent of the Commission on Appointments,
appoint the heads of the executive departments,
ambassadors, other public ministers and consuls,
or officers of the armed forces from the rank of
colonel or naval captain, and other officers whose
appointments are vested in him in this Constitution.
28
He shall also appoint all other officers of the
Government whose appointments are not
otherwise provided for by law, and those whom he
may be authorized by law to appoint. The Congress
may, by law, vest the appointment of other officers
lower in rank in the President alone, in the courts,
or in the heads of department, agencies,
commissions, or boards . . . (Emphasis supplied).
Respondents also aver that the Bangko Sentral has its own budget and
accordingly, its budgetary requirements are not subject to the provisions
of the General Appropriations Act.
We dismiss the petition.
II
The instant petition is in the nature of a quo warranto proceeding as it
seeks the ouster of respondent Singson and alleges that the latter is
unlawfully holding or exercising the powers of Governor of the Bangko
Sentral (Cf. Castro v. Del Rosario, 19 SCRA 196 [1967]). Such a special
civil action can only be commenced by the Solicitor General or by a
"person claiming to be entitled to a public office or position unlawfully
held or exercised by another" (Revised Rules of Court, Rule 66, Sec. 6;
In Sevilla v. Court of Appeals, 209 SCRA 637 (1992), we held that the
petitioner therein, who did not aver that he was entitled to the office of
the City Engineer of Cabanatuan City, could not bring the action for quo
warranto to oust the respondent from said office as a mere usurper.
Likewise in Greene v. Knox, 175 N.Y. 432 (1903), 67 N.E. 910, it was
held that the question of title to an office, which must be resolved in
a quo warranto proceeding, may not be determined in a suit to restrain
the payment of salary to the person holding such office, brought by
someone who does not claim to be the one entitled to occupy the said
office.
It is obvious that the instant action was improvidently brought by
petitioner. To uphold the action would encourage every disgruntled
citizen to resort to the courts, thereby causing incalculable mischief and
hindrance to the efficient operation of the governmental machinery (See
Roosevelt v. Draper, 7 Abb. Pr. 108, 23 N.Y. 218).
Its capstone having been removed, the whole case of petitioner
collapses. Hence, there is no need to resolve the question of whether the
disbursement of public funds to pay the salaries and emoluments of
respondent Singson can be enjoined. Likewise, the Court refrains from
passing upon the constitutionality of Section 6, R.A. No. 7653 in
deference to the principle that bars a judicial inquiry into a constitutional
question unless the resolution thereof is indispensable for the
determination of the case (Fernandez v. Torres, 215 SCRA 489 [1992]).
However for the information of all concerned, we call attention to our
decision in Calderon v. Carale, 208 SCRA 254 (1992), with Justice Isagani
A. Cruz dissenting, where we ruled that Congress cannot by law expand
the confirmation powers of the Commission on Appointments and require
confirmation of appointment of other government officials not expressly
mentioned in the first sentence of Section 16 of Article VII of the
Constitution.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.

G.R. No. 148208 December 15, 2004
CENTRAL BANK (now Bangko Sentral ng Pilipinas) EMPLOYEES
ASSOCIATION, INC., petitioner,
vs.
BANGKO SENTRAL NG PILIPINAS and the EXECUTIVE
SECRETARY, respondents.
DECISION
PUNO, J.:
Can a provision of law, initially valid,
become subsequently unconstitutional, on the ground that
its continuedoperation would violate the equal protection of the law?
We hold that with the passage of the subsequent laws amending the
charter of seven (7) other governmental financial institutions (GFIs), the
continued operation of the last proviso of Section 15(c), Article II of
Republic Act (R.A.) No. 7653, constitutes invidious discrimination on
the 2,994 rank-and-file employees of the Bangko Sentral ng
Pilipinas (BSP).
I.
The Case
First the facts.
On July 3, 1993, R.A. No. 7653 (the New Central Bank Act) took effect. It
abolished the old Central Bank of the Philippines, and created a new BSP.
On June 8, 2001, almost eight years after the effectivity of R.A. No.
7653, petitioner Central Bank (now BSP) Employees Association, Inc.,
filed a petition for prohibition against BSP and the Executive Secretary of
the Office of the President, to restrain respondents from further
implementing the last proviso in Section 15(c), Article II of R.A. No.
7653, on the ground that it is unconstitutional.
Article II, Section 15(c) of R.A. No. 7653 provides:
Section 15. Exercise of Authority - In the exercise of its authority, the
Monetary Board shall:
xxx xxx xxx
(c) establish a human resource management system which
shall govern the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel. Such system shall
aim to establish professionalism and excellence at all levels of
the Bangko Sentral in accordance with sound principles of
management.
A compensation structure, based on job evaluation studies
and wage surveys and subject to the Board's approval, shall
be instituted as an integral component of the Bangko
Sentral's human resource development
program: Provided, That the Monetary Board shall make its
own system conform as closely as possible with the principles
provided for under Republic Act No. 6758 [Salary
Standardization Act]. Provided, however, That
compensation and wage structure of employees whose
positions fall under salary grade 19 and below shall be
in accordance with the rates prescribed under
Republic Act No. 6758. [emphasis supplied]
29
The thrust of petitioner's challenge is that the above proviso makes
an unconstitutional cut between two classes of employees in the
BSP, viz: (1) the BSP officers or those exempted from the coverage of
the Salary Standardization Law (SSL) (exempt class); and (2) the rank-
and-file (Salary Grade [SG] 19 and below), or those not exempted from
the coverage of the SSL (non-exempt class). It is contended that this
classification is "a classic case of class legislation," allegedly not based on
substantial distinctions which make real differences, but solely on the SG
of the BSP personnel's position. Petitioner also claims that it is not
germane to the purposes of Section 15(c), Article II of R.A. No. 7653,
the most important of which is to establish professionalism and
excellence at all levels in the BSP.1 Petitioner offers the following sub-
set of arguments:
a. the legislative history of R.A. No. 7653 shows that the
questioned proviso does not appear in the original and
amended versions of House Bill No. 7037, nor in the original
version of Senate Bill No. 1235; 2
b. subjecting the compensation of the BSP rank-and-file
employees to the rate prescribed by the SSL actually defeats
the purpose of the law3 of establishing professionalism and
excellence at all levels in the BSP; 4(emphasis supplied)
c. the assailed proviso was the product of amendments
introduced during the deliberation of Senate Bill No. 1235,
without showing its relevance to the objectives of the law, and
even admitted by one senator as discriminatory against low-
salaried employees of the BSP;5
d. GSIS, LBP, DBP and SSS personnel are all exempted from
the coverage of the SSL; thus within the class of rank-and-file
personnel of government financial institutions (GFIs), the BSP
rank-and-file are also discriminated upon;6 and
e. the assailed proviso has caused the demoralization among
the BSP rank-and-file and resulted in the gross disparity
between their compensation and that of the BSP officers'. 7
In sum, petitioner posits that the classification is not reasonable but
arbitrary and capricious, and violates the equal protection clause of the
Constitution.8 Petitioner also stresses: (a) that R.A. No. 7653 has a
separability clause, which will allow the declaration of the
unconstitutionality of the proviso in question without affecting the other
provisions; and (b) the urgency and propriety of the petition, as
some 2,994 BSP rank-and-file employees have been prejudiced
since 1994 when the proviso was implemented. Petitioner concludes
that: (1) since the inequitable proviso has no force and effect of law,
respondents' implementation of such amounts to lack of jurisdiction; and
(2) it has no appeal nor any other plain, speedy and adequate remedy in
the ordinary course except through this petition for prohibition, which
this Court should take cognizance of, considering the transcendental
importance of the legal issue involved.9
Respondent BSP, in its comment,10 contends that the provision does not
violate the equal protection clause and can stand the constitutional test,
provided it is construed in harmony with other provisions of the same
law, such as "fiscal and administrative autonomy of BSP," and the
mandate of the Monetary Board to "establish professionalism and
excellence at all levels in accordance with sound principles of
management."
The Solicitor General, on behalf of respondent Executive Secretary,
also defends the validity of the provision. Quite simplistically, he argues
that the classification is based on actual and real differentiation, even as
it adheres to the enunciated policy of R.A. No. 7653 to establish
professionalism and excellence within the BSP subject to prevailing laws
and policies of the national government.11
II.
Issue

Thus, the sole - albeit significant - issue to be resolved in this case is
whether the last paragraph of Section 15(c), Article II of R.A. No. 7653,
runs afoul of the constitutional mandate that "No person shall be. . .
denied the equal protection of the laws."12
III.
Ruling
A. UNDER THE PRESENT STANDARDS OF EQUAL PROTECTION,
SECTION 15(c), ARTICLE II OF R.A. NO. 7653 IS VALID.
Jurisprudential standards for equal protection challenges indubitably
show that the classification created by the questioned proviso, on its face
and in its operation, bears no constitutional infirmities.
It is settled in constitutional law that the "equal protection" clause does
not prevent the Legislature from establishing classes of individuals or
objects upon which different rules shall operate - so long as the
classification is not unreasonable. As held in Victoriano v. Elizalde
Rope Workers' Union,13 and reiterated in a long line of cases:14
The guaranty of equal protection of the laws is not a guaranty
of equality in the application of the laws upon all citizens of
the state. It is not, therefore, a requirement, in order to avoid
the constitutional prohibition against inequality, that every
man, woman and child should be affected alike by a statute.
Equality of operation of statutes does not mean indiscriminate
operation on persons merely as such, but on persons
according to the circumstances surrounding them. It
guarantees equality, not identity of rights. The Constitution
does not require that things which are different in fact be
treated in law as though they were the same. The equal
protection clause does not forbid discrimination as to things
that are different. It does not prohibit legislation which is
limited either in the object to which it is directed or by the
territory within which it is to operate.
The equal protection of the laws clause of the Constitution
allows classification. Classification in law, as in the other
departments of knowledge or practice, is the grouping of
things in speculation or practice because they agree with one
another in certain particulars. A law is not invalid because of
simple inequality. The very idea of classification is that of
inequality, so that it goes without saying that the mere fact of
inequality in no manner determines the matter of
constitutionality. All that is required of a valid classification is
that it be reasonable, which means that the classification
should be based on substantial distinctions which make for
real differences, that it must be germane to the purpose of
the law; that it must not be limited to existing conditions only;
and that it must apply equally to each member of the class.
This Court has held that the standard is satisfied if the
classification or distinction is based on a reasonable
foundation or rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the
purpose of enacting laws over matters within its jurisdiction,
the state is recognized as enjoying a wide range of discretion.
It is not necessary that the classification be based on scientific
or marked differences of things or in their relation. Neither is
it necessary that the classification be made with mathematical
nicety. Hence, legislative classification may in many cases
properly rest on narrow distinctions, for the equal protection
guaranty does not preclude the legislature from recognizing
degrees of evil or harm, and legislation is addressed to evils
as they may appear. (citations omitted)
Congress is allowed a wide leeway in providing for a valid
classification.15 The equal protection clause is not infringed by legislation
which applies only to those persons falling within a specified class.16 If
the groupings are characterized by substantial distinctions that make real
differences, one class may be treated and regulated differently from
another.17 The classification must also be germane to the purpose of the
law and must apply to all those belonging to the same class.18
30
In the case at bar, it is clear in the legislative deliberations that the
exemption of officers (SG 20 and above) from the SSL was intended to
address the BSP's lack of competitiveness in terms of attracting
competent officers and executives. It was not intended to discriminate
against the rank-and-file. If the end-result did in fact lead to a disparity
of treatment between the officers and the rank-and-file in terms of
salaries and benefits, the discrimination or distinction has a rational basis
and is not palpably, purely, and entirely arbitrary in the legislative
sense. 19
That the provision was a product of amendments introduced during the
deliberation of the Senate Bill does not detract from its validity. As early
as 1947 and reiterated in subsequent cases,20 this Court has subscribed
to the conclusiveness of an enrolled bill to refuse invalidating a provision
of law, on the ground that the bill from which it originated contained no
such provision and was merely inserted by the bicameral conference
committee of both Houses.
Moreover, it is a fundamental and familiar teaching that all reasonable
doubts should be resolved in favor of the constitutionality of a
statute.21 An act of the legislature, approved by the executive, is
presumed to be within constitutional limitations. 22 To justify the
nullification of a law, there must be a clear and unequivocal breach of
the Constitution, not a doubtful and equivocal breach.23
B. THE ENACTMENT, HOWEVER, OF SUBSEQUENT LAWS -
EXEMPTING ALL OTHER RANK-AND-FILE EMPLOYEES
OF GFIs FROM THE SSL - RENDERS THE CONTINUED
APPLICATION OF THE CHALLENGED PROVISION
A VIOLATION OF THE EQUAL PROTECTION CLAUSE.
While R.A. No. 7653 started as a valid measure well within the
legislature's power, we hold that the enactment of subsequent laws
exempting all rank-and-file employees of other GFIs leeched all
validity out of the challenged proviso.
1. The concept of relative constitutionality.
The constitutionality of a statute cannot, in every instance, be
determined by a mere comparison of its provisions with applicable
provisions of the Constitution, since the statute may be constitutionally
valid as applied to one set of facts and invalid in its application to
another.24
A statute valid at one time may become void at another time because
of altered circumstances.25 Thus, if a statute in its practical operation
becomes arbitrary or confiscatory, its validity, even though affirmed by a
former adjudication, is open to inquiry and investigation in the light
of changed conditions.26
Demonstrative of this doctrine is Vernon Park Realty v. City of
Mount Vernon,27 where the Court of Appeals of New York declared as
unreasonable and arbitrary a zoning ordinance which placed the
plaintiff's property in a residential district, although it was located in the
center of a business area. Later amendments to the ordinance then
prohibited the use of the property except for parking and storage of
automobiles, and service station within a parking area. The Court found
the ordinance to constitute an invasion of property rights which was
contrary to constitutional due process. It ruled:
While the common council has the unquestioned right to
enact zoning laws respecting the use of property in
accordance with a well-considered and comprehensive plan
designed to promote public health, safety and general
welfare, such power is subject to the constitutional limitation
that it may not be exerted arbitrarily or unreasonably and this
is so whenever the zoning ordinance precludes the use of the
property for any purpose for which it is reasonably
adapted. By the same token, an ordinance valid when
adopted will nevertheless be stricken down as invalid
when, at a later time, its operation under changed
conditions proves confiscatory such, for instance, as
when the greater part of its value is destroyed, for which the
courts will afford relief in an appropriate case.28 (citations
omitted, emphasis supplied)

In the Philippine setting, this Court declared the continued
enforcement of a valid law as unconstitutional as a consequence
of significant changes in circumstances. Rutter v. Esteban29 upheld
the constitutionality of the moratorium law - its enactment and operation
being a valid exercise by the State of its police power 30 - but also ruled
that the continued enforcement of the otherwise valid law would
be unreasonable and oppressive. It noted the subsequent
changes in the country's business, industry and agriculture. Thus, the
law was set aside because its continued operation would be grossly
discriminatory and lead to the oppression of the creditors. The landmark
ruling states:31
The question now to be determined is, is the period of eight
(8) years which Republic Act No. 342 grants to debtors of a
monetary obligation contracted before the last global war and
who is a war sufferer with a claim duly approved by the
Philippine War Damage Commission reasonable under the
present circumstances?
It should be noted that Republic Act No. 342 only extends
relief to debtors of prewar obligations who suffered from the
ravages of the last war and who filed a claim for their losses
with the Philippine War Damage Commission. It is therein
provided that said obligation shall not be due and demandable
for a period of eight (8) years from and after settlement of the
claim filed by the debtor with said Commission. The purpose
of the law is to afford to prewar debtors an opportunity to
rehabilitate themselves by giving them a reasonable time
within which to pay their prewar debts so as to prevent them
from being victimized by their creditors. While it is admitted in
said law that since liberation conditions have gradually
returned to normal, this is not so with regard to those who
have suffered the ravages of war and so it was therein
declared as a policy that as to them the debt moratorium
should be continued in force (Section 1).
But we should not lose sight of the fact that these obligations
had been pending since 1945 as a result of the issuance of
Executive Orders Nos. 25 and 32 and at present their
enforcement is still inhibited because of the enactment of
Republic Act No. 342 and would continue to be unenforceable
during the eight-year period granted to prewar debtors to
afford them an opportunity to rehabilitate themselves, which
in plain language means that the creditors would have to
observe a vigil of at least twelve (12) years before they could
effect a liquidation of their investment dating as far back as
1941. his period seems to us unreasonable, if not oppressive.
While the purpose of Congress is plausible, and should be
commended, the relief accorded works injustice to creditors
who are practically left at the mercy of the debtors. Their
hope to effect collection becomes extremely remote, more so
if the credits are unsecured. And the injustice is more patent
when, under the law, the debtor is not even required to pay
interest during the operation of the relief, unlike similar
statutes in the United States.
xxx xxx xxx
In the face of the foregoing observations, and consistent with
what we believe to be as the only course dictated by justice,
fairness and righteousness, we feel that the only way open to
us under the present circumstances is to declare that
the continued operation and enforcement of Republic
Act No. 342 at the present time is unreasonable and
oppressive, and should not be prolonged a minute
longer, and, therefore, the same should be declared
null and void and without effect. (emphasis supplied,
citations omitted)
2. Applicability of the equal protection clause.
In the realm of equal protection, the U.S. case of Atlantic Coast
Line R. Co. v. Ivey32 is illuminating. The Supreme Court of Florida ruled
against the continued application of statutes authorizing the recovery of
double damages plus attorney's fees against railroad companies, for
animals killed on unfenced railroad right of way without proof of
negligence. Competitive motor carriers, though creating greater hazards,
were not subjected to similar liability because they were not yet in
31
existence when the statutes were enacted. The Court ruled that the
statutes became invalid as denying "equal protection of the law," in view
of changed conditions since their enactment.
In another U.S. case, Louisville & N.R. Co. v. Faulkner,33 the Court of
Appeals of Kentucky declared unconstitutional a provision of a statute
which imposed a duty upon a railroad company of proving that it was
free from negligence in the killing or injury of cattle by its engine or
cars. This, notwithstanding that the constitutionality of the
statute, enacted in 1893, had been previously sustained. Ruled
the Court:
The constitutionality of such legislation was sustained because
it applied to all similar corporations and had for its object the
safety of persons on a train and the protection of property….
Of course, there were no automobiles in those days.
The subsequent inauguration and development of
transportation by motor vehicles on the public highways by
common carriers of freight and passengers created even
greater risks to the safety of occupants of the vehicles and of
danger of injury and death of domestic animals. Yet, under
the law the operators of that mode of competitive
transportation are not subject to the same extraordinary legal
responsibility for killing such animals on the public roads as
are railroad companies for killing them on their private rights
of way.
The Supreme Court, speaking through Justice Brandeis in
Nashville, C. & St. L. Ry. Co. v. Walters, 294 U.S. 405, 55
S.Ct. 486, 488, 79 L.Ed. 949, stated, "A statute valid when
enacted may become invalid by change in the
conditions to which it is applied. The police power is
subject to the constitutional limitation that it may not be
exerted arbitrarily or unreasonably." A number of prior
opinions of that court are cited in support of the statement.
The State of Florida for many years had a statute, F.S.A. §
356.01 et seq. imposing extraordinary and special duties upon
railroad companies, among which was that a railroad company
was liable for double damages and an attorney's fee for killing
livestock by a train without the owner having to prove any act
of negligence on the part of the carrier in the operation of its
train. In Atlantic Coast Line Railroad Co. v. Ivey, it was held
that the changed conditions brought about by motor vehicle
transportation rendered the statute unconstitutional since if a
common carrier by motor vehicle had killed the same animal,
the owner would have been required to prove negligence in
the operation of its equipment. Said the court, "This certainly
is not equal protection of the law."34 (emphasis supplied)
Echoes of these rulings resonate in our case law, viz:
[C]ourts are not confined to the language of the statute under
challenge in determining whether that statute has any
discriminatory effect. A statute nondiscriminatory on its
face may be grossly discriminatory in its
operation. Though the law itself be fair on its face and
impartial in appearance, yet, if it is applied and administered
by public authority with an evil eye and unequal hand, so as
practically to make unjust and illegal discriminations between
persons in similar circumstances, material to their rights, the
denial of equal justice is still within the prohibition of the
Constitution.35 (emphasis supplied, citations omitted)
[W]e see no difference between a law which denies
equal protection and a law which permits of such
denial. A law may appear to be fair on its face and impartial
in appearance, yet, if it permits of unjust and illegal
discrimination, it is within the constitutional prohibition….. In
other words, statutes may be adjudged unconstitutional
because of their effect in operation…. If a law has the effect
of denying the equal protection of the law it is
unconstitutional. ….36 (emphasis supplied, citations omitted
3. Enactment of R.A. Nos. 7907 + 8282 + 8289 + 8291 + 8523
+ 8763
+ 9302 = consequential unconstitutionality of
challenged proviso.

According to petitioner, the last proviso of Section 15(c), Article II of R.A.
No. 7653 is also violative of the equal protection clause because after it
was enacted, the charters of the GSIS, LBP, DBP and SSS were also
amended, but the personnel of the latter GFIs were all exempted from
the coverage of the SSL.37 Thus, within the class of rank-and-file
personnel of GFIs, the BSP rank-and-file are also discriminated upon.
Indeed, we take judicial notice that after the new BSP charter was
enacted in 1993, Congress also undertook the amendment of the
charters of the GSIS, LBP, DBP and SSS, and three other GFIs, from
1995 to 2004, viz:
1. R.A. No. 7907 (1995) for Land Bank of the Philippines
(LBP);
2. R.A. No. 8282 (1997) for Social Security System (SSS);
3. R.A. No. 8289 (1997) for Small Business Guarantee and
Finance Corporation, (SBGFC);
4. R.A. No. 8291 (1997) for Government Service Insurance
System (GSIS);
5. R.A. No. 8523 (1998) for Development Bank of the
Philippines (DBP);
6. R.A. No. 8763 (2000) for Home Guaranty Corporation
(HGC);38 and
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance
Corporation (PDIC).
It is noteworthy, as petitioner points out, that the subsequent
charters of the seven other GFIs share this common proviso: a
blanket exemption of all their employees from the coverage of the
SSL, expressly or impliedly, as illustrated below:
1. LBP (R.A. No. 7907)
Section 10. Section 90 of [R.A. No. 3844] is hereby amended
to read as follows:
Section 90. Personnel. -
xxx xxx xxx
All positions in the Bank shall be governed by a compensation,
position classification system and qualification standards
approved by the Bank's Board of Directors based on a
comprehensive job analysis and audit of actual duties and
responsibilities. The compensation plan shall be comparable
with the prevailing compensation plans in the private sector
and shall be subject to periodic review by the Board no more
than once every two (2) years without prejudice to yearly
merit reviews or increases based on productivity and
profitability. The Bank shall therefore be exempt from
existing laws, rules and regulations on compensation,
position classification and qualification standards. It
shall however endeavor to make its system conform as closely
as possible with the principles under Republic Act No. 6758.
(emphasis supplied)
xxx xxx xxx
2. SSS (R.A. No. 8282)
Section 1. [Amending R.A. No. 1161, Section 3(c)]:
xxx xxx xxx
32
(c)The Commission, upon the recommendation of the SSS
President, shall appoint an actuary and such other personnel
as may [be] deemed necessary; fix their reasonable
compensation, allowances and other benefits; prescribe their
duties and establish such methods and procedures as may be
necessary to insure the efficient, honest and economical
administration of the provisions and purposes of this
Act: Provided, however, That the personnel of the SSS below
the rank of Vice President shall be appointed by the SSS
President: Provided, further, That the personnel appointed by
the SSS President, except those below the rank of assistant
manager, shall be subject to the confirmation by the
Commission; Provided further, That the personnel of the SSS
shall be selected only from civil service eligibles and be
subject to civil service rules and regulations: Provided,
finally, That the SSS shall be exempt from the
provisions of Republic Act No. 6758 and Republic Act
No. 7430. (emphasis supplied)
3. SBGFC (R.A. No. 8289)
Section 8. [Amending R.A. No. 6977, Section 11]:
xxx xxx xxx
The Small Business Guarantee and Finance Corporation shall:
xxx xxx xxx
(e) notwithstanding the provisions of Republic Act No.
6758, and Compensation Circular No. 10, series of
1989 issued by the Department of Budget and
Management, the Board of Directors of SBGFC shall have
the authority to extend to the employees and
personnel thereof the allowance and fringe benefits
similar to those extended to and currently enjoyed by
the employees and personnel of other government
financial institutions. (emphases supplied)
4. GSIS (R.A. No. 8291)
Section 1. [Amending Section 43(d)].
xxx xxx xxx
Sec. 43. Powers and Functions of the Board of Trustees. - The
Board of Trustees shall have the following powers and
functions:
xxx xxx xxx
(d) upon the recommendation of the President and General
Manager, to approve the GSIS' organizational and
administrative structures and staffing pattern, and to
establish, fix, review, revise and adjust the appropriate
compensation package for the officers and employees of the
GSIS with reasonable allowances, incentives, bonuses,
privileges and other benefits as may be necessary or proper
for the effective management, operation and administration of
the GSIS, which shall be exempt from Republic Act No.
6758, otherwise known as the Salary Standardization
Law and Republic Act No. 7430, otherwise known as
the Attrition Law. (emphasis supplied)
xxx xxx xxx
5. DBP (R.A. No. 8523)
Section 6. [Amending E.O. No. 81, Section 13]:
Section 13. Other Officers and Employees. - The Board of
Directors shall provide for an organization and staff of officers
and employees of the Bank and upon recommendation of the

President of the Bank, fix their remunerations and other
emoluments. All positions in the Bank shall be governed by
the compensation, position classification system and
qualification standards approved by the Board of Directors
based on a comprehensive job analysis of actual duties and
responsibilities. The compensation plan shall be comparable
with the prevailing compensation plans in the private sector
and shall be subject to periodic review by the Board of
Directors once every two (2) years, without prejudice to
yearly merit or increases based on the Bank's productivity and
profitability. The Bank shall, therefore, be exempt from
existing laws, rules, and regulations on compensation,
position classification and qualification standards. The
Bank shall however, endeavor to make its system
conform as closely as possible with the principles
under Compensation and Position Classification Act of
1989 (Republic Act No. 6758, as amended). (emphasis
supplied)
6. HGC (R.A. No. 8763)
Section 9. Powers, Functions and Duties of the Board of Directors. - The
Board shall have the following powers, functions and duties:
xxx xxx xxx
(e) To create offices or positions necessary for the efficient
management, operation and administration of the
Corporation: Provided, That all positions in the Home
Guaranty Corporation (HGC) shall be governed by a
compensation and position classification system and
qualifications standards approved by the Corporation's Board
of Directors based on a comprehensive job analysis and audit
of actual duties and responsibilities: Provided, further, That
the compensation plan shall be comparable with the
prevailing compensation plans in the private sector
and which shall be exempt from Republic Act No.
6758, otherwise known as the Salary Standardization
Law, and from other laws, rules and regulations on
salaries and compensations; and to establish a Provident
Fund and determine the Corporation's and the employee's
contributions to the Fund; (emphasis supplied)
xxx xxx xxx
7. PDIC (R.A. No. 9302)
Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby
further amended to read:
xxx xxx xxx
3.
xxx xxx xxx
A compensation structure, based on job evaluation studies
and wage surveys and subject to the Board's approval, shall
be instituted as an integral component of the Corporation's
human resource development program: Provided, That all
positions in the Corporation shall be governed by a
compensation, position classification system and qualification
standards approved by the Board based on a comprehensive
job analysis and audit of actual duties and
responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans of
other government financial institutions and shall be
subject to review by the Board no more than once every two
(2) years without prejudice to yearly merit reviews or
increases based on productivity and profitability. The
Corporation shall therefore be exempt from existing
laws, rules and regulations on compensation, position
classification and qualification standards. It shall
however endeavor to make its system conform as closely as
possible with the principles under Republic Act No. 6758, as
amended. (emphases supplied)
33
Thus, eleven years after the amendment of the BSP charter, the
rank-and-file of seven other GFIs were granted the exemption
that was specifically denied to the rank-and-file of the BSP. And
as if to add insult to petitioner's injury, even the Securities and Exchange
Commission (SEC) was granted the same blanket exemption from the
SSL in 2000!39
The prior view on the constitutionality of R.A. No. 7653 was confined to
an evaluation of its classification between the rank-and-file and
the officers of the BSP, found reasonable because there were
substantial distinctions that made real differences between the two
classes.
The above-mentioned subsequent enactments,
however, constitute significant changes in circumstancethat
considerably alter the reasonability of the continued operation
of the last proviso of Section 15(c), Article II of Republic Act No.
7653, thereby exposing the proviso to more serious
scrutiny. This time, the scrutiny relates to the constitutionality of the
classification - albeit made indirectly as a consequence of the passage of
eight other laws - between the rank-and-file of the BSP and the
seven other GFIs. The classification must not only be reasonable, but
must also apply equally to all members of the
class. The proviso may be fair on its face and impartial in
appearance but it cannot be grossly discriminatory in its
operation, so as practically to make unjust distinctions between persons
who are without differences.40
Stated differently, the second level of inquiry deals with the following
questions: Given that Congress chose to exempt other GFIs (aside the
BSP) from the coverage of the SSL, can the exclusion of the rank-and-file
employees of the BSP stand constitutional scrutiny in the light of the fact
that Congress did not exclude the rank-and-file employees of the other
GFIs? Is Congress' power to classify so unbridled as to sanction unequal
and discriminatory treatment, simply because the inequity manifested
itself, not instantly through a single overt act, but gradually and
progressively, through seven separate acts of Congress? Is the right to
equal protection of the law bounded in time and space that: (a) the right
can only be invoked against a classification made directly and
deliberately, as opposed to a discrimination that arises indirectly, or as a
consequence of several other acts; and (b) is the legal analysis confined
to determining the validity within the parameters of the statute or
ordinance (where the inclusion or exclusion is articulated), thereby
proscribing any evaluation vis-à-vis the grouping, or the lack thereof,
among several similar enactments made over a period of time?
In this second level of scrutiny, the inequality of treatment cannot be
justified on the mere assertion that each exemption (granted to the
seven other GFIs) rests "on a policy determination by the legislature." All
legislative enactments necessarily rest on a policy
determination - even those that have been declared to contravene the
Constitution. Verily, if this could serve as a magic wand to sustain the
validity of a statute, then no due process and equal protection challenges
would ever prosper. There is nothing inherently sacrosanct in a policy
determination made by Congress or by the Executive; it cannot run riot
and overrun the ramparts of protection of the Constitution.
In fine, the "policy determination" argument may support the inequality
of treatment between the rank-and-file and the officers of the BSP, but it
cannot justify the inequality of treatment between BSP rank-and-file and
other GFIs' who are similarly situated. It fails to appreciate that what is
at issue in the second level of scrutiny is not the declared policy of
each law per se, but the oppressive results of Congress'
inconsistent and unequal policytowards the BSP rank-and-file and
those of the seven other GFIs. At bottom, the second challenge to the
constitutionality of Section 15(c), Article II of Republic Act No. 7653 is
premised precisely on the irrational discriminatory policy
adopted by Congress in its treatment of persons similarly
situated. In the field of equal protection, the guarantee that "no person
shall be … denied the equal protection of the laws" includes the
prohibition against enacting laws that allow invidious
discrimination, directly or indirectly. If a law has the effect of denying
the equal protection of the law, or permits such denial, it is
unconstitutional.41
It is against this standard that the disparate treatment of the BSP rank-
and-file from the other GFIs cannot stand judicial scrutiny. For as regards
the exemption from the coverage of the SSL, there exist no substantial

distinctions so as to differentiate, the BSP rank-and-file from the other
rank-and-file of the seven GFIs. On the contrary, our legal history
shows that GFIs have long been recognized as comprising one
distinct class, separate from other governmental entities.
Before the SSL, Presidential Decree (P.D.) No. 985 (1976) declared
it as a State policy (1) to provide equal pay for substantially equal work,
and (2) to base differences in pay upon substantive differences in duties
and responsibilities, and qualification requirements of the positions. P.D.
No. 985 was passed to address disparities in pay among similar or
comparable positions which had given rise to dissension among
government employees. But even then, GFIs and government-
owned and/or controlled corporations (GOCCs) were already
identified as a distinct class among government
employees. Thus, Section 2 also provided, "[t]hat notwithstanding a
standardized salary system established for all employees, additional
financial incentives may be established by government corporation and
financial institutions for their employees to be supported fully from their
corporate funds and for such technical positions as may be approved by
the President in critical government agencies."42
The same favored treatment is made for the GFIs and the GOCCs under
the SSL. Section 3(b) provides that one of the principles governing the
Compensation and Position Classification System of the Government is
that: "[b]asic compensation for all personnel in the government and
government-owned or controlled corporations and financial institutions
shall generally be comparable with those in the private sector doing
comparable work, and must be in accordance with prevailing laws on
minimum wages."
Thus, the BSP and all other GFIs and GOCCs were under the unified
Compensation and Position Classification System of the SSL,43 but rates
of pay under the SSL were determined on the basis of, among others,
prevailing rates in the private sector for comparable work. Notably, the
Compensation and Position Classification System was to be governed by
the following principles: (a) just and equitable wages, with the ratio of
compensation between pay distinctions maintained at equitable
levels;44 and (b) basic compensation generally comparable with the
private sector, in accordance with prevailing laws on minimum
wages.45 Also, the Department of Budget and Management was directed
to use, as guide for preparing the Index of Occupational Services, the
Benchmark Position Schedule, and the following factors:46
(1) the education and experience required to perform the
duties and responsibilities of the positions;
(2) the nature and complexity of the work to be performed;
(3) the kind of supervision received;
(4) mental and/or physical strain required in the completion of
the work;
(5) nature and extent of internal and external relationships;
(6) kind of supervision exercised;
(7) decision-making responsibility;
(8) responsibility for accuracy of records and reports;
(9) accountability for funds, properties and equipment; and
(10) hardship, hazard and personal risk involved in the job.
The Benchmark Position Schedule enumerates the position titles that fall
within Salary Grades 1 to 20.
Clearly, under R.A. No. 6758, the rank-and-file of all GFIs were similarly
situated in all aspects pertaining to compensation and position
classification, in consonance with Section 5, Article IX-B of the 1997
Constitution.47
34
Then came the enactment of the amended charter of the
BSP, implicitly exempting the Monetary Board from the SSL by giving it
express authority to determine and institute its own compensation and
wage structure. However, employees whose positions fall under SG 19
and below were specifically limited to the rates prescribed under the SSL.
Subsequent amendments to the charters of other GFIs
followed. Significantly, each government financial institution (GFI) was
not only expressly authorized to determine and institute its own
compensation and wage structure, but also explicitly exempted -
without distinction as to salary grade or position - all employees
of the GFI from the SSL.
It has been proffered that legislative deliberations justify the grant or
withdrawal of exemption from the SSL, based on the perceived need "to
fulfill the mandate of the institution concerned considering, among
others, that: (1) the GOCC or GFI is essentially proprietary in character;
(2) the GOCC or GFI is in direct competition with their [sic] counterparts
in the private sector, not only in terms of the provisions of goods or
services, but also in terms of hiring and retaining competent personnel;
and (3) the GOCC or GFI are or were [sic] experiencing difficulties filling
up plantilla positions with competent personnel and/or retaining these
personnel. The need for the scope of exemption necessarily varies with
the particular circumstances of each institution, and the corresponding
variance in the benefits received by the employees is merely incidental."
The fragility of this argument is manifest. First, the BSP is the central
monetary authority,48 and the banker of the government and all
its political subdivisions.49 It has the sole power and authority to issue
currency;50 provide policy directions in the areas of money, banking, and
credit; and supervise banks and regulate finance companies and non-
bank financial institutions performing quasi-banking functions, including
the exempted GFIs.51 Hence, the argument that the rank-and-file
employees of the seven GFIs were exempted because of the importance
of their institution's mandate cannot stand any more than an empty sack
can stand.
Second, it is certainly misleading to say that "the need for the scope of
exemption necessarily varies with the particular circumstances of each
institution." Nowhere in the deliberations is there a cogent basis for the
exclusion of the BSP rank-and-file from the exemption which was
granted to the rank-and-file of the other GFIs and the SEC. As point in
fact, the BSP and the seven GFIs are similarly situated in so far as
Congress deemed it necessary for these institutions to be exempted from
the SSL. True, the SSL-exemption of the BSP and the seven GFIs was
granted in the amended charters of each GFI, enacted separately and
over a period of time. But it bears emphasis that, while each GFI has a
mandate different and distinct from that of another, the deliberations
show that the raison d'être of the SSL-exemption was inextricably
linked to and for the most part based on factors common to the eight
GFIs, i.e., (1) the pivotal role they play in the economy; (2) the necessity
of hiring and retaining qualified and effective personnel to carry out the
GFI's mandate; and (3) the recognition that the compensation package
of these GFIs is not competitive, and fall substantially below industry
standards. Considering further that (a) the BSP was the first GFI granted
SSL exemption; and (b) the subsequent exemptions of other GFIs did not
distinguish between the officers and the rank-and-file; it is patent
that the classification made between the BSP rank-and-file and
those of the other seven GFIs was inadvertent, and NOT
intended, i.e., it was not based on any substantial distinction vis-à-vis the
particular circumstances of each GFI. Moreover, the exemption granted
to two GFIs makes express reference to allowance and fringe benefits
similar to those extended to and currently enjoyed by the employees and
personnel of other GFIs,52 underscoring that GFIs are a particular class
within the realm of government entities.
It is precisely this unpremeditated discrepancy in treatment of the rank-
and-file of the BSP - made manifest and glaring with each and every
consequential grant of blanket exemption from the SSL to the other GFIs
- that cannot be rationalized or justified. Even more so, when the SEC -
which is not a GFI - was given leave to have a compensation plan that
"shall be comparable with the prevailing compensation plan in the [BSP]
and other [GFIs],"53then granted a blanket exemption from the SSL, and
its rank-and-file endowed a more preferred treatment than the rank-and-
file of the BSP.
The violation to the equal protection clause becomes even more
pronounced when we are faced with this undeniable truth: that if

Congress had enacted a law for the sole purpose of exempting the eight
GFIs from the coverage of the SSL, the exclusion of the BSP rank-and-file
employees would have been devoid of any substantial or material basis.
It bears no moment, therefore, that the unlawful discrimination was not
a direct result arising from one law. "Nemo potest facere per alium quod
non potest facere per directum." No one is allowed to do indirectly what
he is prohibited to do directly.
It has also been proffered that "similarities alone are not sufficient to
support the conclusion that rank-and-file employees of the BSP may be
lumped together with similar employees of the other GOCCs for purposes
of compensation, position classification and qualification standards. The
fact that certain persons have some attributes in common does not
automatically make them members of the same class with respect to a
legislative classification." Cited is the ruling in Johnson v.
Robinson:54 "this finding of similarity ignores that a common
characteristic shared by beneficiaries and nonbeneficiaries alike, is not
sufficient to invalidate a statute when other characteristics peculiar to
only one group rationally explain the statute's different treatment of the
two groups."
The reference to Johnson is inapropos. In Johnson, the US Court
sustained the validity of the classification as there were quantitative
and qualitative distinctions, expressly recognized by Congress,
which formed a rational basis for the classification limiting
educational benefits to military service veterans as a means of helping
them readjust to civilian life. The Court listed the peculiar characteristics
as follows:
First, the disruption caused by military service is quantitatively
greater than that caused by alternative civilian service. A
conscientious objector performing alternative service is
obligated to work for two years. Service in the Armed Forces,
on the other hand, involves a six-year commitment…
xxx xxx xxx
Second, the disruptions suffered by military veterans and
alternative service performers are qualitatively different.
Military veterans suffer a far greater loss of personal freedom
during their service careers. Uprooted from civilian life, the
military veteran becomes part of the military establishment,
subject to its discipline and potentially hazardous duty.
Congress was acutely aware of the peculiar disabilities caused
by military service, in consequence of which military
servicemen have a special need for readjustment benefits…
55
(citations omitted)
In the case at bar, it is precisely the fact that as regards the
exemption from the SSL, there are no characteristics peculiar
only to the seven GFIs or their rank-and-file so as to justify the
exemption which BSP rank-and-file employees were denied (not
to mention the anomaly of the SEC getting one). The distinction made by
the law is not only superficial,56 but also arbitrary. It is not based on
substantial distinctions that make real differences between the BSP rank-
and-file and the seven other GFIs.
Moreover, the issue in this case is not - as the dissenting opinion of
Mme. Justice Carpio-Morales would put it - whether "being an employee
of a GOCC or GFI is reasonable and sufficient basis for exemption" from
R.A. No. 6758. It is Congress itself that distinguished the GFIs
from other government agencies, not once but eight times, through
the enactment of R.A. Nos. 7653, 7907, 8282, 8289, 8291, 8523, 8763,
and 9302. These laws may have created a "preferred sub-class within
government employees," but the present challenge is not directed at the
wisdom of these laws. Rather, it is a legal conundrum involving the
exercise of legislative power, the validity of which must be measured not
only by looking at the specific exercise in and by itself (R.A. No. 7653),
but also as to the legal effects brought about by seven separate
exercises - albeit indirectly and without intent.
Thus, even if petitioner had not alleged "a comparable change in the
factual milieu as regards the compensation, position classification and
qualification standards of the employees of the BSP (whether of the
executive level or of the rank-and-file) since the enactment of the new
Central Bank Act" is of no moment. In GSIS v. Montesclaros,57 this Court
resolved the issue of constitutionality notwithstanding that claimant had
35
manifested that she was no longer interested in pursuing the case, and
even when the constitutionality of the said provision was not squarely
raised as an issue, because the issue involved not only the claimant but
also others similarly situated and whose claims GSIS would also deny
based on the challenged proviso. The Court held that social justice and
public interest demanded the resolution of the constitutionality of
the proviso. And so it is with the challenged proviso in the case at bar.
It bears stressing that the exemption from the SSL is a "privilege" fully
within the legislative prerogative to give or deny. However, its
subsequent grant to the rank-and-file of the seven other GFIs and
continued denial to the BSP rank-and-file employees breached the latter's
right to equal protection. In other words, while the granting of a
privilege per se is a matter of policy exclusively within the domain and
prerogative of Congress, the validity or legality of the exercise of this
prerogative is subject to judicial review.58 So when the distinction made is
superficial, and not based on substantial distinctions that make real
differences between those included and excluded, it becomes a matter of
arbitrariness that this Court has the duty and the power to correct. 59 As
held in the United Kingdom case of Hooper v. Secretary of State for
Work and Pensions,60 once the State has chosen to confer benefits,
"discrimination" contrary to law may occur where favorable treatment
already afforded to one group is refused to another, even though the
State is under no obligation to provide that favorable treatment. 61
The disparity of treatment between BSP rank-and-file and the rank-and-
file of the other seven GFIs definitely bears the unmistakable badge of
invidious discrimination - no one can, with candor and fairness, deny the
discriminatory character of the subsequent blanket and total exemption
of the seven other GFIs from the SSL when such was withheld from the
BSP. Alikes are being treated as unalikes without any rational
basis.
Again, it must be emphasized that the equal protection clause does not
demand absolute equality but it requires that all persons shall be
treated alike, under like circumstances and conditions both as to
privileges conferred and liabilities enforced. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection
and security shall be given to every person under circumstances which, if
not identical, are analogous. If law be looked upon in terms of burden or
charges, those that fall within a class should be treated in the same
fashion; whatever restrictions cast on some in the group is equally
binding on the rest.62
In light of the lack of real and substantial distinctions that would justify
the unequal treatment between the rank-and-file of BSP from the seven
other GFIs, it is clear that the enactment of the seven subsequent
charters has rendered the continued application of the
challenged proviso anathema to the equal protection of the law, and the
same should be declared as an outlaw.
IV.
Equal Protection Under International Lens
In our jurisdiction, the standard and analysis of equal protection
challenges in the main have followed the "rational basis" test, coupled
with a deferential attitude to legislative classifications63 and a reluctance
to invalidate a law unless there is a showing of a clear and unequivocal
breach of the Constitution. 64
A. Equal Protection in the United States
In contrast, jurisprudence in the U.S. has gone beyond the static
"rational basis" test. Professor Gunther highlights the development in
equal protection jurisprudential analysis, to wit: 65
Traditionally, equal protection supported only minimal
judicial intervention in most contexts. Ordinarily, the
command of equal protection was only that government must
not impose differences in treatment "except upon some
reasonable differentiation fairly related to the object of
regulation." The old variety of equal protection
scrutiny focused solely on the means used by the
legislature: it insisted merely that the classification in the
statute reasonably relates to the legislative

purpose. Unlike substantive due process, equal protection
scrutiny was not typically concerned with identifying
"fundamental values" and restraining legislative ends. And
usually the rational classification requirement was readily
satisfied: the courts did not demand a tight fit between
classification and purpose; perfect congruence between
means and ends was not required.
xxx xxx xxx
[From marginal intervention to major cutting
edge: The Warren Court's "new equal protection" and the
two-tier approach.]
From its traditional modest role, equal
protection burgeoned into a major intervention tool
during the Warren era, especially in the 1960s. The Warren
Court did not abandon the deferential ingredients of the old
equal protection: in most areas of economic and social
legislation, the demands imposed by equal protection
remained as minimal as ever…But the Court launched an
equal protection revolution by finding large new areas for
strict rather than deferential scrutiny. A sharply
differentiated two-tier approach evolved by the late
1960s: in addition to the deferential "old" equal protection, a
"new" equal protection, connoting strict scrutiny, arose….
The intensive review associated with the new equal protection
imposed two demands - a demand not only as to means
but also one as to ends. Legislation qualifying for strict
scrutiny required a far closer fit between classification and
statutory purpose than the rough and ready flexibility
traditionally tolerated by the old equal protection: means
had to be shown "necessary" to achieve statutory
ends, not merely "reasonably related" ones. Moreover,
equal protection became a source of ends scrutiny as well:
legislation in the areas of the new equal protection had to be
justified by "compelling" state interests, not merely the wide
spectrum of "legitimate" state ends.
The Warren Court identified the areas appropriate for
strict scrutiny by searching for two characteristics: the
presence of a "suspect" classification; or an impact on
"fundamental" rights or interests. In the category of "suspect
classifications," the Warren Court's major contribution was to
intensify the strict scrutiny in the traditionally interventionist
area of racial classifications. But other cases also suggested
that there might be more other suspect categories as well:
illegitimacy and wealth for example. But it was the
'fundamental interests" ingredient of the new equal protection
that proved particularly dynamic, open-ended, and
amorphous….. [Other fundamental interests included voting,
criminal appeals, and the right of interstate travel ….]
xxx xxx xxx
The Burger Court and Equal Protection.
The Burger Court was reluctant to expand the scope of
the new equal protection, although its best
established ingredient retains vitality. There was also
mounting discontent with the rigid two-tier formulations of the
Warren Court's equal protection doctrine. It was prepared to
use the clause as an interventionist tool without resorting to
the strict language of the new equal protection…. [Among the
fundamental interests identified during this time were voting
and access to the ballot, while "suspect" classifications
included sex, alienage and illegitimacy.]
xxx xxx xxx
Even while the two-tier scheme has often been adhered to in
form, there has also been an increasingly noticeable
resistance to the sharp difference between deferential "old"
and interventionist "new" equal protection. A number of
justices sought formulations that would blur the sharp
distinctions of the two-tiered approach or that would narrow
the gap between strict scrutiny and deferential review. The
36
most elaborate attack came from Justice Marshall, whose
frequently stated position was developed most elaborately in
his dissent in the Rodriguez case: 66
The Court apparently seeks to establish [that] equal
protection cases fall into one of two neat categories which
dictate the appropriate standard of review - strict scrutiny
or mere rationality. But this (sic) Court's [decisions] defy
such easy categorization. A principled reading of what this
Court has done reveals that it has applied a spectrum of
standards in reviewing discrimination allegedly violative of the
equal protection clause. This spectrum clearly comprehends
variations in the degree of care with which Court will
scrutinize particular classification, depending, I believe, on the
constitutional and societal importance of the interests
adversely affected and the recognized invidiousness of the
basis upon which the particular classification is drawn.
Justice Marshall's "sliding scale" approach describes many
of the modern decisions, although it is a formulation that the
majority refused to embrace. But the Burger Court's
results indicate at least two significant changes in
equal protection law: First, invocation of the "old" equal
protection formula no longer signals, as it did with the Warren
Court, an extreme deference to legislative classifications and a
virtually automatic validation of challenged statutes. Instead,
several cases, even while voicing the minimal "rationality"
"hands-off" standards of the old equal protection, proceed to
find the statute unconstitutional. Second, in some areas
the modern Court has put forth standards for equal
protection review that, while clearly more intensive than the
deference of the "old" equal protection, are less demanding
than the strictness of the "new" equal protection. Sex
discrimination is the best established example of
an "intermediate" level of review. Thus, in one case, the
Court said that "classifications by gender must
serve important governmental objectives and must
be substantially related to achievement of those
objectives." That standard is "intermediate" with respect to
both ends and means: where ends must be "compelling" to
survive strict scrutiny and merely "legitimate" under the "old"
mode, "important" objectives are required here; and where
means must be "necessary" under the "new" equal protection,
and merely "rationally related" under the "old" equal
protection, they must be "substantially related" to survive the
"intermediate" level of review. (emphasis supplied, citations
omitted)
B. Equal Protection in Europe
The United Kingdom and other members of the European
Community have also gone forward in discriminatory legislation and
jurisprudence. Within the United Kingdom domestic law, the most
extensive list of protected grounds can be found in Article 14 of the
European Convention on Human Rights (ECHR). It prohibits
discrimination on grounds such as "sex, race, colour, language, religion,
political or other opinion, national or social origin, association with a
national minority, property, birth or other status." This list is illustrative
and not exhaustive. Discrimination on the basis of race, sex and
religion is regarded as grounds that require strict scrutiny. A
further indication that certain forms of discrimination are regarded
as particularly suspect under the Covenant can be gleaned from
Article 4, which, while allowing states to derogate from certain Covenant
articles in times of national emergency, prohibits derogation by measures
that discriminate solely on the grounds of "race, colour, language,
religion or social origin."67
Moreover, the European Court of Human Rights has developed a test
of justification which varies with the ground of discrimination. In
the Belgian Linguistics case68 the European Court set the standard of
justification at a low level: discrimination would contravene the
Convention only if it had no legitimate aim, or there was no reasonable
relationship of proportionality between the means employed and the aim
sought to be realised.69 But over the years, the European Court has
developed a hierarchy of grounds covered by Article 14 of the
ECHR, a much higher level of justification being required in
respect of those regarded as "suspect" (sex, race, nationality,
illegitimacy, or sexual orientation) than of others. Thus,
in Abdulaziz, 70 the European Court declared that:

. . . [t]he advancement of the equality of the sexes is today a
major goal in the member States of the Council of Europe.
This means that very weighty reasons would have to be
advanced before a difference of treatment on the ground of
sex could be regarded as compatible with the Convention.
And in Gaygusuz v. Austria,71 the European Court held that "very
weighty reasons would have to be put forward before the Court could
regard a difference of treatment based exclusively on the ground of
nationality as compatible with the Convention."72 The European
Court will then permit States a very much narrower margin of
appreciation in relation to discrimination on grounds of sex, race, etc.,
in the application of the Convention rights than it will in relation to
distinctions drawn by states between, for example, large and small land-
owners. 73
C. Equality under International Law
The principle of equality has long been recognized under international
law. Article 1 of the Universal Declaration of Human
Rights proclaims that all human beings are born free and equal in
dignity and rights. Non-discrimination, together with equality before
the law and equal protection of the law without any discrimination,
constitutes basic principles in the protection of human rights. 74
Most, if not all, international human rights instruments include
some prohibition on discrimination and/or provisions about
equality.75 The general international provisions pertinent to discrimination
and/or equality are the International Covenant on Civil and Political
Rights (ICCPR);76 the International Covenant on Economic, Social and
Cultural Rights (ICESCR); the International Convention on the Elimination
of all Forms of Racial Discrimination (CERD);77 the Convention on the
Elimination of all Forms of Discrimination against Women (CEDAW); and
the Convention on the Rights of the Child (CRC).
In the broader international context, equality is also enshrined in
regional instruments such as the American Convention on Human
Rights;78 the African Charter on Human and People's Rights;79 the
European Convention on Human Rights;80 the European Social Charter of
1961 and revised Social Charter of 1996; and the European Union
Charter of Rights (of particular importance to European states). Even the
Council of the League of Arab States has adopted the Arab Charter on
Human Rights in 1994, although it has yet to be ratified by the Member
States of the League.81
The equality provisions in these instruments do not merely
function as traditional "first generation" rights, commonly
viewed as concerned only with constraining rather than
requiring State action. Article 26 of the ICCPR requires "guarantee[s]"
of "equal and effective protection against discrimination" while Articles 1
and 14 of the American and European Conventions oblige States Parties
"to ensure ... the full and free exercise of [the rights guaranteed] ...
without any discrimination" and to "secure without discrimination" the
enjoyment of the rights guaranteed.82 These provisions impose a
measure of positive obligation on States Parties to take steps to
eradicate discrimination.
In the employment field, basic detailed minimum standards ensuring
equality and prevention of discrimination, are laid down in the
ICESCR83 and in a very large number of Conventions administered by the
International Labour Organisation, a United Nations body. 84 Additionally,
many of the other international and regional human rights instruments
have specific provisions relating to employment.85
The United Nations Human Rights Committee has also gone
beyond the earlier tendency to view the prohibition against
discrimination (Article 26) as confined to the ICCPR
rights.86 In Broeks87 and Zwaan-de Vries,88the issue before the
Committee was whether discriminatory provisions in the Dutch
Unemployment Benefits Act (WWV) fell within the scope of Article 26.
The Dutch government submitted that discrimination in social security
benefit provision was not within the scope of Article 26, as the right was
contained in the ICESCR and not the ICCPR. They accepted that Article
26 could go beyond the rights contained in the Covenant to other civil
and political rights, such as discrimination in the field of taxation, but
contended that Article 26 did not extend to the social, economic, and
cultural rights contained in ICESCR. The Committee rejected this
37
argument. In its view, Article 26 applied to rights beyond the Covenant
including the rights in other international treaties such as the right to
social security found in ICESCR:
Although Article 26 requires that legislation should prohibit
discrimination, it does not of itself contain any obligation with
respect to the matters that may be provided for by legislation.
Thus it does not, for example, require any state to enact
legislation to provide for social security. However, when such
legislation is adopted in the exercise of a State's sovereign
power, then such legislation must comply with Article 26 of
the Covenant.89
Breaches of the right to equal protection occur directly or indirectly. A
classification may be struck down if it has the purpose or effect of
violating the right to equal protection. International law recognizes
that discrimination may occur indirectly, as the Human Rights
Committee90 took into account the definitions of discrimination adopted
by CERD and CEDAW in declaring that:
. . . "discrimination" as used in the [ICCPR] should be
understood to imply any distinction, exclusion, restriction or
preference which is based on any ground such as race,
colour, sex, language, religion, political or other opinion,
national or social origin, property, birth or other status, and
which has the purpose or effect of nullifying or
impairing the recognition, enjoyment or exercise by all
persons, on an equal footing, of all rights and
freedoms. 91 (emphasis supplied)
Thus, the two-tier analysis made in the case at bar of the
challenged provision, and its conclusion of unconstitutionality
by subsequent operation, are in cadence and in consonance with
the progressive trend of other jurisdictions and in international
law. There should be no hesitation in using the equal protection clause
as a major cutting edge to eliminate every conceivable irrational
discrimination in our society. Indeed, the social justice imperatives in the
Constitution, coupled with the special status and protection afforded to
labor, compel this approach.92
Apropos the special protection afforded to labor under our Constitution
and international law, we held in International School Alliance of
Educators v. Quisumbing: 93
That public policy abhors inequality and discrimination is
beyond contention. Our Constitution and laws reflect the
policy against these evils. The Constitution in the Article on
Social Justice and Human Rights exhorts Congress to "give
highest priority to the enactment of measures that protect and
enhance the right of all people to human dignity, reduce
social, economic, and political inequalities." The very broad
Article 19 of the Civil Code requires every person, "in the
exercise of his rights and in the performance of his duties, [to]
act with justice, give everyone his due, and observe honesty
and good faith."
International law, which springs from general principles of
law, likewise proscribes discrimination. General principles of
law include principles of equity, i.e., the general principles of
fairness and justice, based on the test of what is reasonable.
The Universal Declaration of Human Rights, the International
Covenant on Economic, Social, and Cultural Rights, the
International Convention on the Elimination of All Forms of
Racial Discrimination, the Convention against Discrimination in
Education, the Convention (No. 111) Concerning
Discrimination in Respect of Employment and Occupation - all
embody the general principle against discrimination, the very
antithesis of fairness and justice. The Philippines, through its
Constitution, has incorporated this principle as part of its
national laws.
In the workplace, where the relations between capital and
labor are often skewed in favor of capital, inequality and
discrimination by the employer are all the more reprehensible.
The Constitution specifically provides that labor is entitled to
"humane conditions of work." These conditions are not

restricted to the physical workplace - the factory, the office or
the field - but include as well the manner by which employers
treat their employees.
The Constitution also directs the State to promote "equality of
employment opportunities for all." Similarly, the Labor Code
provides that the State shall "ensure equal work opportunities
regardless of sex, race or creed." It would be an affront to
both the spirit and letter of these provisions if the State, in
spite of its primordial obligation to promote and ensure equal
employment opportunities, closes its eyes to unequal and
discriminatory terms and conditions of employment.
xxx xxx xxx
Notably, the International Covenant on Economic, Social, and
Cultural Rights, in Article 7 thereof, provides:
The States Parties to the present Covenant recognize the right
of everyone to the enjoyment of just and [favorable]
conditions of work, which ensure, in particular:
a. Remuneration which provides all workers, as a
minimum, with:
i. Fair wages and equal remuneration for
work of equal value without distinction
of any kind, in particular women being
guaranteed conditions of work not
inferior to those enjoyed by men, with
equal pay for equal work;
xxx xxx xxx
The foregoing provisions impregnably institutionalize in this
jurisdiction the long honored legal truism of "equal pay for
equal work." Persons who work with substantially equal
qualifications, skill, effort and responsibility, under similar
conditions, should be paid similar salaries. (citations omitted)
Congress retains its wide discretion in providing for a valid classification,
and its policies should be accorded recognition and respect by the courts
of justice except when they run afoul of the Constitution.94 The
deference stops where the classification violates a fundamental
right, or prejudices persons accorded special protection by the
Constitution. When these violations arise, this Court must discharge its
primary role as the vanguard of constitutional guaranties, and require a
stricter and more exacting adherence to constitutional
limitations. Rational basis should not suffice.
Admittedly, the view that prejudice to persons accorded special
protection by the Constitution requires a stricter judicial scrutiny finds no
support in American or English jurisprudence. Nevertheless, these foreign
decisions and authorities are not per se controlling in this jurisdiction. At
best, they are persuasive and have been used to support many of our
decisions.95 We should not place undue and fawning reliance upon them
and regard them as indispensable mental crutches without which we
cannot come to our own decisions through the employment of our own
endowments. We live in a different ambience and must decide our own
problems in the light of our own interests and needs, and of our qualities
and even idiosyncrasies as a people, and always with our own concept of
law and justice.96 Our laws must be construed in accordance with the
intention of our own lawmakers and such intent may be deduced from
the language of each law and the context of other local legislation
related thereto. More importantly, they must be construed to serve our
own public interest which is the be-all and the end-all of all our laws. And
it need not be stressed that our public interest is distinct and different
from others.97
In the 2003 case of Francisco v. House of Representatives, this Court has
stated that: "[A]merican jurisprudence and authorities, much less the
American Constitution, are of dubious application for these are no longer
controlling within our jurisdiction and have only limited persuasive merit
insofar as Philippine constitutional law is concerned....[I]n resolving
constitutional disputes, [this Court] should not be beguiled by foreign
jurisprudence some of which are hardly applicable because they have
38
been dictated by different constitutional settings and needs."98 Indeed,
although the Philippine Constitution can trace its origins to that of the
United States, their paths of development have long since diverged. 99
Further, the quest for a better and more "equal" world calls for the use
of equal protection as a tool of effective judicial intervention.
Equality is one ideal which cries out for bold attention and
action in the Constitution. The Preamble proclaims "equality"
as an ideal precisely in protest against crushing inequities in
Philippine society. The command to promote social justice in
Article II, Section 10, in "all phases of national development,"
further explicitated in Article XIII, are clear commands to the
State to take affirmative action in the direction of greater
equality.… [T]here is thus in the Philippine Constitution no
lack of doctrinal support for a more vigorous state effort
towards achieving a reasonable measure of equality.100
Our present Constitution has gone further in guaranteeing vital social
and economic rights to marginalized groups of society, including
labor.101 Under the policy of social justice, the law bends over backward
to accommodate the interests of the working class on the humane
justification that those with less privilege in life should have more in
law.102 And the obligation to afford protection to labor is incumbent not
only on the legislative and executive branches but also on the judiciary to
translate this pledge into a living reality. 103 Social justice calls for the
humanization of laws and the equalization of social and economic forces
by the State so that justice in its rational and objectively secular
conception may at least be approximated.104
V.
A Final Word
Finally, concerns have been raised as to the propriety of a ruling voiding
the challenged provision. It has been proffered that the remedy of
petitioner is not with this Court, but with Congress, which alone has the
power to erase any inequity perpetrated by R.A. No. 7653. Indeed, a bill
proposing the exemption of the BSP rank-and-file from the SSL has
supposedly been filed.
Under most circumstances, the Court will exercise judicial restraint in
deciding questions of constitutionality, recognizing the broad discretion
given to Congress in exercising its legislative power. Judicial scrutiny
would be based on the "rational basis" test, and the legislative discretion
would be given deferential treatment. 105
But if the challenge to the statute is premised on the denial of a
fundamental right, or the perpetuation of prejudice against
persons favored by the Constitution with special protection,
judicial scrutiny ought to be more strict. A weak and watered down
view would call for the abdication of this Court's solemn duty to strike
down any law repugnant to the Constitution and the rights it enshrines.
This is true whether the actor committing the unconstitutional act is a
private person or the government itself or one of its instrumentalities.
Oppressive acts will be struck down regardless of the character or nature
of the actor. 106
Accordingly, when the grant of power is qualified, conditional
or subject to limitations, the issue on whether or not the
prescribed qualifications or conditions have been met, or the
limitations respected, is justiciable or non-political, the crux of
the problem being one of legality or validity of the contested
act, not its wisdom. Otherwise, said qualifications, conditions
or limitations - particularly those prescribed or imposed by the
Constitution - would be set at naught. What is more, the
judicial inquiry into such issue and the settlement thereof are
the main functions of courts of justice under the Presidential
form of government adopted in our 1935 Constitution, and the
system of checks and balances, one of its basic predicates. As
a consequence, We have neither the authority nor the
discretion to decline passing upon said issue, but are
under the ineluctable obligation - made particularly
more exacting and peremptory by our oath, as
members of the highest Court of the land, to support
and defend the Constitution - to settle it. This explains
why, in Miller v. Johnson, it was held that courts have a "duty,
 39

rather than a power", to determine whether another branch of

the government has "kept within constitutional limits." Not
satisfied with this postulate, the court went farther and
stressed that, if the Constitution provides how it may be
amended - as it is in our 1935 Constitution - "then, unless the
manner is followed, the judiciary as the interpreter of that
constitution, will declare the amendment invalid." In fact, this
very Court - speaking through Justice Laurel, an outstanding
authority on Philippine Constitutional Law, as well as one of
the highly respected and foremost leaders of the Convention
that drafted the 1935 Constitution - declared, as early as July
15, 1936, that "(i)n times of social disquietude or political
excitement, the great landmarks of the Constitution are apt to
be forgotten or marred, if not entirely obliterated. In cases of
conflict, the judicial department is the only constitutional
organ which can be called upon to determine the proper
allocation of powers between the several departments" of the
government.107 (citations omitted; emphasis supplied)

In the case at bar, the challenged proviso operates on the basis of the
salary grade or officer-employee status. It is akin to a distinction
based on economic class and status, with the higher grades as
recipients of a benefit specifically withheld from the lower grades.
Officers of the BSP now receive higher compensation packages that are
competitive with the industry, while the poorer, low-salaried employees
are limited to the rates prescribed by the SSL. The implications are quite
disturbing: BSP rank-and-file employees are paid the strictly regimented
rates of the SSL while employees higher in rank - possessing higher and
better education and opportunities for career advancement - are given
higher compensation packages to entice them to stay. Considering
that majority, if not all, the rank-and-file employees consist of
people whose status and rank in life are less and limited,
especially in terms of job marketability, it is they - and not the
officers - who have the real economic and financial need for the
adjustment This is in accord with the policy of the Constitution "to free
the people from poverty, provide adequate social services, extend to
them a decent standard of living, and improve the quality of life for
all."108 Any act of Congress that runs counter to this
constitutional desideratum deserves strict scrutiny by this Court
before it can pass muster.

To be sure, the BSP rank-and-file employees merit greater

concern from this Court. They represent the more impotent rank-and-
file government employees who, unlike employees in the private sector,
have no specific right to organize as a collective bargaining unit and
negotiate for better terms and conditions of employment, nor the power
to hold a strike to protest unfair labor practices. Not only are they
impotent as a labor unit, but their efficacy to lobby in Congress is almost
nil as R.A. No. 7653 effectively isolated them from the other GFI rank-
and-file in compensation. These BSP rank-and-file employees
represent the politically powerless and they should not be
compelled to seek a political solution to their unequal and
iniquitous treatment. Indeed, they have waited for many years for the
legislature to act. They cannot be asked to wait some more for
discrimination cannot be given any waiting time. Unless the equal
protection clause of the Constitution is a mere platitude, it is the Court's
duty to save them from reasonless discrimination.

IN VIEW WHEREOF, we hold that the continued operation and

implementation of the last proviso of Section 15(c), Article II of Republic
Act No. 7653 is unconstitutional.

G.R. No. 141835 February 4, 2009
CENTRAL BANK OF THE PHILIPPINES,
Petitioner, versus
CITYTRUST BANKING CORPORATION,
Respondent.
DECISION
CARPIO MORALES, J.:
Pursuant to Republic Act No. 625, the old Central Bank Law,
respondent Citytrust Banking Corporation (Citytrust), formerly Feati
Bank, maintained a demand deposit account with petitioner Central Bank
of the Philippines, now Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with the names and
corresponding signatures of five of its officers authorized to sign checks
and serve as drawers and indorsers for its account. And it provided
petitioner with the list and corresponding signatures of its roving tellers
authorized to withdraw, sign receipts and perform other transactions on
its behalf. Petitioner later issued security identification cards to the
roving tellers one of whom was Rounceval Flores (Flores).
On July 15, 1977, Flores presented for payment to petitioners
Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust checks of
even date, payable to Citytrust, one in the amount of P850,000 and the
other in the amount of P900,000, both of which were signed and
indorsed by Citytrusts authorized signatory-drawers.
After the checks were certified by petitioners Accounting
Department, Iluminada verified them, prepared the cash transfer slip on
which she affixed her signature, stamped the checks with the notation
Received Payment and asked Flores to, as he did, sign on the space
above such notation. Instead of signing his name,
however, Flores signed as Rosauro C. Cayabyab a fact Iluminada failed
to notice.
Iluminada thereupon sent the cash transfer slip and checks to
petitioners Cash Department where an officer verified and compared the
drawers signatures on the checks against their specimen signatures
provided by Citytrust, and finding the same in order, approved the cash
transfer slip and paid the corresponding amounts to Flores. Petitioner
then debited the amount of the checks totaling P1,750,000 from
Citytrusts demand deposit account.
More than a year and nine months later, Citytrust, by letter
dated April 23, 1979, alleging that the checks were already cancelled
because they were stolen, demanded petitioner to restore the amounts
covered thereby to its demand deposit account. Petitioner did not heed
the demand, however.
Citytrust later filed a complaint for estafa, with reservation on
the filing of a separate civil action, against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial Court (RTC)
of Manila a complaint for recovery of sum of money with damages
against petitioner which it alleged erred in encashing the checks and in
charging the proceeds thereof to its account, despite the lack of
authority of Rosauro C. Cayabyab.
By Decision[1] of November 13, 1991, Branch 32 of the RTC of
Manila found both Citytrust and petitioner negligent and accordingly held
them equally liable for the loss.Both parties appealed to the Court of
Appeals which, by Decision[2] dated July 16, 1999, affirmed the trial
courts decision, it holding that both parties contributed equally to the
fraudulent encashment of the checks, hence, they should equally share
the loss in consonance with Article 2179[3] vis a vis Article 1172[4] of the
Civil Code.
40
In arriving at its Decision, the appellate court noted that while
Citytrust failed to take adequate precautionary measures to prevent the
fraudulent encashment of its checks, petitioner was not entirely blame-
free in light of its failure to verify the signature of Citytrusts agent
authorized to receive payment.
Brushing aside petitioners contention that it cannot be sued,
the appellate court held that petitioners Charter specifically clothes it
with the power to sue and be sued.
Also brushing aside petitioners assertion that Citytrusts
reservation of the filing of a separate civil action against Flores precluded
Citytrust from filing the civil action against it, the appellate court held
that the action for the recovery of sum of money is separate and distinct
and is grounded on a separate cause of action from that of the criminal
case for estafa.
Hence, the present appeal, petitioner maintaining that Flores
having been an authorized roving teller, Citytrust is bound by his
acts. Also maintaining that it was not negligent in releasing the proceeds
of the checks to Flores, the failure of its teller to properly verify his
signature notwithstanding, petitioner contends that verification could be
dispensed with, Flores having been known to be an authorized roving
teller of Citytrust who had had numerous transactions with it (petitioner)
on its (Citytrusts) behalf for five years prior to the questioned
transaction.
Attributing negligence solely to Citytrust, petitioner harps on
Citytrusts allowing Flores to steal the checks and failing to timely cancel
them; allowing Flores to wear the issued identification card issued by it
(petitioner); failing to report Flores absence from work on the day of the
incident; and failing to explain the circumstances surrounding the
supposed theft and cancellation of the checks.
Drawing attention to Citytrusts considerable delay in
demanding the restoration of the proceeds of the checks, petitioners
argue that, assuming arguendo that its teller was negligent, Citytrusts
negligence, which preceded that committed by the teller, was the
proximate cause of the loss or fraud.
The petition is bereft of merit.
Petitioners teller Iluminada did not verify Flores signature on
the flimsy excuse that Flores had had previous transactions with it for a
number of years. That circumstance did not excuse the teller from
focusing attention to or at least glancing at Flores as he was signing, and
to satisfy herself that the signature he had just affixed matched that of
his specimen signature. Had she done that, she would have readily been
put on notice that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated to
supervise and regulate banking and other financial institutions, this
Courts ruling in Consolidated Bank and Trust Corporation v. Court of
Appeals[5] illumines:
The contract between the bank and its
depositor is governed by the provisions of the Civil
Code on simple loan. Article 1980 of the Civil Code
expressly provides that x x x savings x x x deposits
of money in banks and similar institutions shall be
governed by the provisions concerning simple
loan. There is a debtor-creditor relationship
between the bank and its depositor. The bank is
the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank
agrees to pay the depositor on demand. The
savings deposit agreement between the bank and
the depositor is the contract that determines the
rights and obligations of the parties.
 41

The law imposes on banks high

standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA
8791), which took effect on 13 June 2000, declares
that the State recognizes the fiduciary nature of
banking that requires high standards of integrity
and performance. This new provision in the general
banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting
with the 1990 case of Simex International v. Court
of Appeals, holding that the bank is under
obligation to treat the accounts of its depositors
with meticulous care, always having in mind the
fiduciary nature of their relationship.

This fiduciary relationship means

that the banks obligation to observe high
standards of integrity and performance is
deemed written into every deposit
agreement between a bank and its depositor.
The fiduciary nature of banking requires
banks to assume a degree of diligence higher
than that of a good father of a family. Article
1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed
by law or contract, and absent such stipulation
then the diligence of a good father of a family.
Section 2 of RA 8791 prescribes the statutory
diligence required from banks that banks must
observe high standards of integrity and
performance in servicing their
depositors. Although RA 8791 took effect
almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diazs
savings account, jurisprudence at the time of
the withdrawal already imposed on banks
the same high standard of diligence required
under RA No. 8791. (Emphasis supplied)

Citytrusts failure to timely examine its account, cancel the

checks and notify petitioner of their alleged loss/theft should mitigate
petitioners liability, in accordance with Article 2179 of the Civil Code
which provides that if the plaintiffs negligence was only contributory, the
immediate and proximate cause of the injury being the defendants lack
of due care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded. For had Citytrust timely discovered
the loss/theft and/or subsequent encashment, their proceeds or part
thereof could have been recovered.

In line with the ruling in Consolidated Bank, the Court deems

it proper to allocate the loss between petitioner and Citytrust on a 60-40
ratio.

WHEREFORE, the assailed Court of Appeals Decision of July

16, 1999 is hereby AFFIRMED with MODIFICATION, in that petitioner
and Citytrust should bear the loss on a 60-40 ratio.

SO ORDERED.

G.R. No. 177526 July 4, 2008
PHILIPPINE SAVINGS BANK, G.R. No. 177526
Petitioner, versus
CHOWKING FOOD CORPORATION,
DECISION
REYES, R.T., J.:
IT is the peculiar quality of a fool to perceive the fault of others and to
forget his own. Ang isang kakatuwang katangian ng isang hangal
ay punahin ang kamalian ng iba at kalimutan naman ang sa
kanya.
This is a petition for review on certiorari of the Decision[1] of the Court of
Appeals (CA) reinstating the Decision of the Regional Trial Court
(RTC), Manila, Branch 5. The RTCordered petitioner Philippine Savings
Bank (PSBank) and its Bustos Branch Head, Erlinda O. Santos, to
reimburse respondent Chowking Food Corporation (Chowking) the
amount corresponding to five (5) illegally encashed checks.
The Facts
Between March 15, 1989 and August 10, 1989, Joe Kuan Food
Corporation issued in favor of Chowking five (5) PSBank checks with the
following numbers, dates and denominations:
Check No. Amount Date
017069 P 44,120.00 15 March 1989
053528 P135,052.87 09 May 1989
074602 P160,138.12 08 August 1989
074631 P159,634.13 08 August 1989
017096 P 60,036.74 10 August 1989[2]
The total amount of the subject checks reached P556,981.86.
On the respective due dates of each check, Chowkings acting accounting
manager, Rino T. Manzano, endorsed and encashed said checks with the
Bustos branch of respondent PSBank.[3]
All the five checks were honored by defendant Santos, even with only
the endorsement of Manzano approving them. The signatures of the
other authorized officers of respondent corporation were absent in the
five (5) checks, contrary to usual banking practice. [4] Unexpectedly,
Manzano absconded with and misappropriated the check proceeds. [5]
When Chowking found out Manzanos scheme, it demanded
reimbursement from PSBank. [6] When PSBank refused to pay, Chowking
filed a complaint[7] for a sum of money with damages before
the RTC. Likewise impleaded were PSBanks president, Antonio S.
Abacan, and Bustos branch head, Santos.[8]
Both PSBank and Santos filed cross claims and third party complaints
against Manzano.[9] Despite all diligent efforts, summonses were not
served upon third party defendant Manzano. Santos did not take any
further action and her third party complaint was archived.[10]
Meanwhile, petitioner caused the service of its summons on the cross-
claim and third party complaints through publication. On its subsequent
motion, Manzano was declared in default for failure to file a responsive
pleading.[11]
Respondent filed a motion for summary judgment. Petitioner
opposed the motion. On February 1, 1995, the trial court denied the
motion via an order of even date.[12]
42
In its Answer, petitioner did not controvert the foregoing facts, but
denied liability to respondent for the encashed checks. [13] Petitioner bank
maintained it exercised due diligence in the supervision of all its
employees. It even dismissed defendant Santos after she was found
guilty of negligence in the performance of her duties.[14]
Defendant Santos, on the other hand, denied that she had been
negligent in her job. She averred that she merely followed the banks
practice of honoring respondents checks even if accompanied only by
Manzanos endorsement.[15]
Defendant Abacan likewise denied any liability to respondent. He alleged
that, as president and officer of petitioner bank, he played no role in the
transactions complained of.[16]Thus, respondent has no cause of action
against him.
Petitioner, Santos and Abacan were unanimous in asserting
that respondent is estopped from claiming reimbursement and damages
since it was negligent in allowing Manzano to take hold, endorse, and
encash its checks. Petitioner pointed out that the proximate cause of
respondents loss was its own negligence.[17]
RTC Disposition
On August 24, 1998, the RTC rendered judgment in favor of
respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of plaintiff and as against
defendant Philippine Savings Bank and Erlinda O.
Santos ordering the said defendants to pay
plaintiff, jointly and severally:
1. The amount of P556,981.86 plus
interest at the rate of 12% per
annum from August 15,
1989 until said amount shall
have been paid;
2. 20% of the total amount
due plaintiff as
attorneys fees;
3. The sum of P100,000.00 as
exemplary damages;
4. The sum of P1,000,000.00
for plaintiffs unrealized
profits.
The complaint with respect to defendant
Antonio Abacan, Jr. as well as his counterclaim and
cross claim are hereby DISMISSED.
With respect to the cross claim of
defendant PSBank against Erlinda Santos and its
third-party complaint against Rino T. Manzano,
both Santos and Manzano are hereby ordered to
jointly and severally, reimburse defendant PSBank
whatever amount the latter shall be constrained to
pay plaintiff in connection with this case.
SO ORDERED.[18]
Aggrieved, petitioner filed a motion for reconsideration. Through an
Order dated January 11, 1999, the RTC reversed its earlier ruling and
held that it was respondents own negligence that was the proximate
cause of the loss. The fallo of the amended RTC decision now reads:
 43

In light of the foregoing grounds and appellants checks, over the counter, despite the
observations, the Decision of August 24, 1998, by this proper indorsements, the categorical finding of
Court is accordingly modified as follows: negligence against her, remaining unrebutted, is
deemed established. This in effect warrants a
1. Ordering the dismissal of the complaint finding that Santos is liable for damages to the
by the plaintiff Chowking Food appellant. The lower court therefore erred in
Corporation against the defendants, dismissing the complaint against her.[21]
Philippine Savings Bank (PSBank)
and Erlinda Santos for lack of basis
in fact and law;
Further, the CA held that:
2. Ordering the third party defendant,
Regino or Rino T. Manzano to pay
the plaintiff Chowking Food Contrary to PSBs contention that it
Corporation, the following: should not be held liable because it neither
consented to nor had knowledge of Santos (sic)
a. To reimburse the plaintiff violations, such liability of Santos is solidary
the amount with PSBpursuant to Article 2176 in relation to
of P556,981.86 plus Article 2180 of the Civil Code which states:
interest at the rate of
12% per annum Art. 2176. Whoever by act or omission
from August 15, 1989, causes damage to another, there being
until said amount has fault or negligence, is obliged to pay for
been fully satisfied; the damage done....
Art. 2180. The obligation imposed by Art.
b. To pay an attorneys fee 2176 is demandable not only for one's own
equivalent to 20% of acts or omissions but also for those of
the total amount due persons for whom one is responsible.
the plaintiff;
xxxx
c. To pay an amount
of P100,000.00 the Employers shall be liable for the damage
plaintiff for actual and caused by their employees and household
compensatory helpers acting within the scope of their
damages, plus the assigned tasks even though the former are
costs of this suit. not engaged in any business or activity.

SO ORDERED.[19] xxxx

The responsibility treated of in this article

shall cease when the persons herein
Dissatisfied with the modified ruling of the RTC, respondent appealed to mentioned prove that they observed all the
diligence of a good father of a family to
the CA. prevent damage.

x x x However, with banks like PSB, the degree of

CA Disposition
In its appeal, respondent Chowking contended, inter alia, that
the RTC erred in ruling that the proximate cause of the loss was its own
negligence; and that its claim was barred by estoppel.
On January 31, 2007, the CA granted the appeal, disposing as
follows:
WHEREFORE, the instant appeal is
GRANTED. The order appealed from is hereby SET
ASIDE and the 24 August 1998 decision is
consequently REINSTATED with modification that
the awards of attorneys fees, exemplary damages,
and alleged P1,000,000.00 unrealized profits of the
appellant are DELETED.
IT IS SO ORDERED.[20]
diligence required is more than that of a good
father of a family considering that the business of
banking is imbued with public interest due to the
nature of its functions. Highest degree of diligence
is needed which PSB, in this case, failed to
observe.
x x x Its argument that it should no be held
responsible for the negligent acts
of Santos because those were independent acts x x
x perpetrated without its knowledge and consent is
without basis in fact and in law. Assuming
that PSB did not err in hiring Santos for her
position, its lack of supervision over her made it
solidarily liable for the unauthorized encashment of
the checks involved. In the supervision of
employees, the employer must formulate standard
operating procedures, monitor their implementation
and impose disciplinary measures for the breach
thereof.The appellee, in this case, presented no
evidence that it formulated rules/guidelines for the
proper performance of functions of its
employees and that it strictly implemented and
monitored compliance therewith. x x x[22]

The CA also disagreed with petitioners contention that respondents own

The CA held that both petitioner PSBank and Santos should
bear the loss. Said the appellate court:
It is admitted that PSB cashed, over the
counter, the checks of the appellant indorsed by
Manzano alone. Since there is no more dispute on
the negligent act of Santos in honoring the
negligence was the proximate cause of its loss. The CA opined that even
assuming that respondent was also negligent in allowing Manzano to
encash its checks, petitioner had the last clear chance to avert injury and
loss to respondent. This could have been done if petitioner,
through Santos, faithfully and carefully observed its encashment rules
and procedures.

The CA ratiocinated:
x x x Had Santos not been remiss in verifying the
indorsements of the checks involved, she would not
have cashed the same because Manzano, whose only
signature appears therein, is apparently not an
authorized signatory of the appellant x x x had every
means to determine the validity of those indorsements
but for one reason or another she was neglectful of her
duty x x x as admitted by PSB, such over the counter
encashments are not even sanctioned by its policies
but Santos simply ignored the same. It appears clear
that Santos let the opportunity slip by when an exercise
of ordinary prudence expected of bank employees
would have sufficed to prevent the loss.[23]
Issues
Petitioner has resorted to the present recourse and assigns to
the CA the following errors:
I is, therefore, no sufficient evidence to sustain PSBs
THE HONORABLE COURT OF APPEALS ERRED IN
NOT RULING THAT RESPONDENT WAS
ESTOPPED FROM ASSERTING ITS CLAIM AGAINST
PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED
WHEN IT DID NOT RULE THAT RESPONDENT'S
NEGLIGENCE WAS THE PROXIMATE CAUSE OF ITS
OWN LOSS.(Underscoring supplied)
Our Ruling
The doctrine of equitable estoppel or estoppel in pais finds no
application in the present case. The equitable doctrine of estoppel
was explained by this Court in Caltex (Philippines), Inc. v. Court of
Appeals:[24]
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying
thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied
upon them. In the law of evidence, whenever a party has, by his
own declaration, act, or omission, intentionally and deliberately
led another to believe a particular thing true, to act upon such
belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.[25]
The principle received further elaboration in Maneclang v.
Baun:[26]
In estoppel by pais, as related to the party
sought to be estopped, it is necessary that there be a
concurrence of the following requisites: (a) conduct
amounting to false representation or concealment of
material facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (b) intent, or at least expectation that
this conduct shall be acted upon, or at least influenced by
the other party; and (c) knowledge, actual or constructive
of the actual facts.[27]
Estoppel may vary somewhat in definition, but all authorities agree that a
party invoking the doctrine must have been misled to ones
44
prejudice. That is the final and, in reality, most important of the
elements of equitable estoppel.[28] It is this element that is lacking here.
We agree with the CA that Chowking did not make any false
representation or concealment of material facts in relation to the
encashments of the previous checks. As adverted to earlier, respondent
may have allowed Manzano to previously encash its checks, but it has
always been accompanied with the endorsements of the other authorized
signatories.Respondent did not allow petitioner to have its
checks encashed without the signature of all of its authorized signatories.
The CA pointed out:
We find at the back of those checks,
whereon indorsement usually appears, the signature of
Manzano together with other
signature/signatures though mostly are illegible. It
appears then that, assuming the appellant impliedly
tolerated the act of Manzano in indorsing the checks, it
did not allow Manzano alone to indorse its checks as
what actually happened in this case because his
previous indorsements were coupled with other
indorsements of the appellants signatories. There
submission. On this score alone, the defense of
estoppel must fail.[29] (Underscoring and emphasis
supplied)
Neither can estoppel be appreciated in relation to petitioner
itself. In Kalalo v. Luz,[30] the Court enumerated the elements of estoppel
in this wise:
x x x As related to the party claiming the
estoppel, the essential elements are (1) lack of knowledge
and of the means of knowledge of the truth as the facts in
question; (2) reliance, in good faith, upon the conduct
and statements of the party to be estopped; (3) action or
inaction based thereon of such character as to change the
position or status of the party claiming the estoppel, to his
injury, detriment or prejudice.[31]
Here, the first two elements are wanting. Petitioner has knowledge of
the truth and the means to it as to the proper endorsements necessary
in encashing respondents checks.Respondent has an account with
petitioner bank and, as such, is privy to the proper signatories to
endorse respondents checks.
Neither can petitioner claim good faith.
It is elementary that estoppel cannot be sustained in doubtful
inference. Absent the conclusive proof that its essential elements are
present, estoppel must fail. Because estoppel, when misapplied,
becomes a most effective weapon to accomplish an injustice, inasmuch
as it shuts a mans mouth from speaking the truth.[32]
Petitioner failed to prove that it has observed the due diligence
required of banks under the law. Contrary to petitioners view, its
negligence is the proximate cause of respondents loss.
It cannot be over emphasized that the banking business is
impressed with public interest. Of paramount importance is the trust and
confidence of the public in general in the banking
industry. Consequently, the diligence required of banks is more than that
of a Roman pater familias or a good father of a family. [33] The highest
degree of diligence is expected.[34]
 45

In its declaration of policy, the General Banking Law of

2000[35] requires of banks the highest standards of integrity and
performance. Needless to say, a bank is under obligation to treat the
accounts of its depositors with meticulous care. [36] The fiduciary nature of
the relationship between the bank and the depositors must always be of
paramount concern.[37]
Petitioner, through Santos, was clearly negligent when it
honored respondents checks with the lone endorsement of Manzano. In
the similar case of Philippine Bank of Commerce v. Court of Appeals,
[38]
an employee of Rommels Marketing Corporation (RMC) was able to
illegally deposit in a different account the checks of the corporation.This
Court found that it was the bank tellers failure to exercise extraordinary
diligence to validate the deposit slips that caused the crime to be
perpetrated.
The Court held thus:
overlooked the irregular practice of encashing checks even without the
requisite endorsements.
In Bank of the Philippine Islands v. Casa Montessori
Internationale,[41] this Court similarly held:
For allowing payment on the checks to a
wrongful and fictitious payee, BPI the drawee bank
becomes liable to its depositor-drawer. Since the
encashing bank is one of its branches, BPI can easily go
after it and hold it liable for reimbursement. x x x In
both law and equity, when one of two innocent persons
must suffer by the wrongful act of a third person, the
loss must be borne by the one whose negligence was
the proximate cause of the loss or who put it into the
power of the third person to perpetrate the wrong.[42]

Further, the Court ruled:

Negligence here lies not only on the part of Ms.
Mabayad but also on the part of the bank itself in
its lackadaisical selection and supervision of Ms.
Mabayad. This was exemplified in the testimony of
Mr. Romeo Bonifacio, then Manager of the Pasig
Branch of the petitioner bank and now its Vice-
President, to the effect that, while he ordered the
investigation of the incident, he never came to
know that blank deposit slips were validated in
total disregard of the bank's validation
procedures, viz.:
Q: Did he ever tell you that one of your
cashiers affixed the stamp mark of the
bank on the deposit slips and they
validated the same with the machine,
the fact that those deposit slips were
unfilled up, is there any report similar to
that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit
slip?
A: No it was not reported.
Pursuant to its prime duty to ascertain well
the genuineness of the signatures of its client-depositors
on checks being encashed, BPI is expected to use
reasonable business prudence. In the performance of
that obligation, it is bound by its internal banking rules
and regulations that form part of the contract it enters
into with its depositors.
Unfortunately, it failed in that regard. x
x x Without exercising the required prudence on its
part, BPI accepted and encashed the eight checks
presented to it. As a result, it proximately
contributed to the fraud and should be held
primarily liable for the negligence of its
officers or agents when acting within the
course and scope of their employment. It
must bear the loss.[43]
WHEREFORE, the petition is DENIED for lack of merit.

Q: You did not know that any one in the

bank tellers or cashiers validated the SO ORDERED.
blank deposit slip?
A: I am not aware of that.

Q: It is only now that you are

aware of that?
A: Yes, Sir.

xxxx

It was this negligence x x x coupled by

the negligence of the petitioner bank in the
selection and supervision of its bank teller, which
was the proximate cause of the loss suffered by
private respondent, and not the latters act of
entrusting cash to a dishonest employee, as
insisted by the petitioners.[39]

Proximate cause is determined by the facts of the case. It is

that cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which the
result would not have occurred.[40]

Measured by the foregoing yardstick, the proximate cause of

the loss is not respondents alleged negligence in allowing Manzano to
take hold and encash respondents checks. The proximate cause is
petitioners own negligence in the supervision of its employees when it

[G.R. No. 161276. January 31, 2005]
BORLONGAN vs. REYES
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court
dated JAN 31 2005.
G.R. No. 161276 (Teodoro C. Borlongan vs. Alberto V. Reyes, Ma.
Dolores B. Yuviengco, Candon B. Guerrero and Tomas S. Aure, Jr.)
At bar is this petition for review on certiorari filed by petitioner Teodoro
C. Borlongan, assailing the decision dated 18 September 2003 [1] of
the Court of Appeals in CA-G.R. SP No. 72234, reversing and setting
aside the Orders dated 2 July 2002 and 30 July 2002 of the Ombudsman
in OMB-ADM-0-00-0867 which respectively declared herein respondents
guilty of simple neglect of duty, and denied both parties' separate
motions for reconsideration.
In a complaint-affidavit filed with Office of the Ombudsman and thereat
docketed as OMB-ADM-0-00-0867, petitioner Teodoro C. Borlongan,
former president and chief executive officer of Union Bank, Inc. (UBI),
administratively charged herein respondent officials of the Bangko
Sentral ng Pilipinas (BSP), for allegedly falsifying statement of facts in
the BSP Supervision and Examination Sector (SES) reports and
tendering incorrect and inaccurate reports and opinions to conjure false
grounds for the closure of UBI and Urbancorp Development Bank and
placing them under receivership, to the detriment of their shareholders,
officers and employees.
In an Order dated 2 July 2002,[2]cralaw the Ombudsman found
respondents guilty of simple neglect of duty and imposed upon them the
penalty of one (1) month and one (1) day suspension without pay. In a
subsequent Order dated 30 July 2002,[3]cralawthe Ombudsman
denied both parties' motions for reconsideration.
Therefrom, both parties interposed separate appellate recourses to the
Court of Appeals.
Respondents were the first to appeal via a petition for review, which was
docketed in the Court of Appeals as CA-G.R. SP No. 72234 and raffled
off to its 17th Division.
For his part, petitioner, also thru a petition for review, questioned before
the Court of Appeals the Ombudsman's absolution of the BSP Governor
and its General Counsel from his affidavit-complaint, and sought the
imposition of a graver penalty against the herein respondents. Docketed
as CA-G.R. SP No. 72270, petitioner's appeal landed to
the 5th Division of the appellate court.
Initially, petitioner filed a motion to consolidate the two (2) cases. Later,
however, he not only withdrew said motion but even vigorously opposed
the consolidation.
Unconsolidated, the two (2) cases proceeded separately. And, as it
turned out, the two (2) divisions of the Court of Appeals rendered
conflicting decisions.
Thus, in a decision dated 13 August 2003, [4] the
5th Division modified the questioned orders of the Ombudsman by
finding the herein respondents, including the BSP Governor, guilty of
gross neglect of duty and imposing on each of them the penalty of one
(1) year suspension without pay.
On the other hand, the 17th Division, in a decision dated 18
September 2003,[5]cralawreversed and set aside the same assailed
orders of the Ombudsman and dismissed the administrative complaints
against the herein respondents.
46
Petitioner filed a motion for reconsideration, imploring
the 17th Division to set aside its September 18,2003 decision for being
th
inconsistent with the August 13, 2003 decision of the 5 Division in CA-
G.R. SP No. 72270.
In a Resolution dated 17 December 2003,[6]cralaw the 17th Division
denied petitioner's motion for reconsideration, and, in the process,
castigated petitioner for his refusal to have the two (2) cases
consolidated:
Without a consolidation, there is no rule of law or jurisprudence that
prevents us, the 17th Division, from deciding SP 72234 according to our
own independent judgment, any more than the 5 th Division can be
prevented from ruling upon SP 72270 according to their own
independent judgment.
The records show that respondent had, indeed, filed with us a motion to
consolidate SP 72270 with our SP 72234. But for reasons only known to
him, he withdrew the motion for consolidation. He even said that the
5th Division had eventually denied the consolidation of the case with us,
again for reasons we do not know.
Under these circumstances, without a consolidation, both divisions will
have to decide their own cases, and any resulting conflict in the decisions
on similar issues of fact and law will have to be resolved ultimately by
the Supreme Court as the supreme arbiter of all justiciable controversies
in this jurisdiction.
But for the respondent to make it appear as if we are to blame for the
conflict between the two divisions of the Court, after the respondent
refused to consolidate the cases before us, is absurd and comical.
Absurd, because he is saying in so many words that we should not
exercise an independent judgment in our case anymore after the
5th Division happened to decide its case ahead of us and comical,
because he has reduced the adjudicative process into a race between the
cases. If we had only known that this was the kind of ballgame he
wanted us to observe, we would have considered our case submitted for
decision a long time ago, immediately after he filed his comment, and
bar the parties from filling replies, memoranda and other pleadings as a
waste of our time. This is how things would turn out if we pursued his
line of thinking ad absurdum.
To repeat, the respondent refused to have his case in the 5 th Division
consolidated before us. If he is to fault anyone now for the consequence
of this non-consolidation, he should point all his fingers to himself.
Later, or on June 14, 2004, the former 5 th Division of the Court of
Appeals, this time acting as a Special Division of Five in connection
with the motions for reconsideration therein pending, came out with
an Amended Decision,[7]cralawamending the earlier decision of 12
August 2003 in CA-G.R. SP No. 72270 by dismissing the administrative
complaint against all the respondents therein. Petitioner elevated the
same Amended Decision to this Court via a petition for review on
certiorari in G.R. No. 163765.
In a Resolution promulgated on July 26, 2004,[8]cralaw the Court, thru its
Third Division, denied the petition in G.R. No. 163765 "for failure of the
petitioner to show that a reversible error had been committed by the
appellate court". In a subsequent Resolution promulgated on October 1,
2004, the Court denied petitioner's motion for reconsideration with
finality "as no substantial arguments were raised to warrant a
reconsideration thereof".
Meanwhile, on February 13, 2004, petitioner filed the instant petition for
review on certiorari, this time assailing the 18 September 2003 decision
of the 17th Decision of the Court of Appeals in CA-G.R. SP No. 72234.
Perusal of the present petition reveals that it raises substantially the
same issues already passed upon by the two (2) Divisions of the Court of
Appeals and by this Court, no less, in G.R. No. 163765.
Chanting the same tone, the recourse is unavailing.
 47

In Philippine Retirement Authority vs. Rupa,[9]cralaw we laid down the
standard definition of simple neglect of duty, as a disregard of a duty
resulting from carelessness or indifference.
Here, we find that neither gross nor simple neglect of duty characterized
the acts of the respondents. The subject SES reports prepared by
respondents and submitted to the Monetary Board were anything but
haphazardly or negligently made. As it were, the reports were a
compendium of long years of monitoring by the BSP of a problem bank,
and assembled over a period of 15 hours after the respondents were
instructed to do so. The data contained therein had been patiently
collected and analyzed.
Record reveals that UBI was being monitored by BSP officials for years.
Respondent Dolores Yuvienco had supervised the bank directly since
1999 as Director of DCB II
UBI had since given up its status as an expanded commercial bank and
reverted to an ordinary commercial bank because it could not meet the
P3.5 billion minimum capital requirement for a universal bank. For two
(2) months prior to its closure, Urban Bank had been besieged by
liquidity problems, and its declaration of a bank holiday on April 25 only
confirmed its decreasing ability to meet obligations on time.
they do, what is actionable is not the recommendation but the decision
of the official with the competence under the law to issue it. [11]cralaw
The subject reports are only between the Monetary Board and the BSP
officials who prepared and endorsed them and may be rejected, modified
or accepted by the Monetary Board. As far as this case is concerned, the
legal obligations of diligence and good faith that BSP officials owe to the
public under Section 16 of the New Central Act start with the official acts
of the Monetary Board which, rightly or wrong, are the cause of loss or
injury to third parties, not any preparatory report or recommendation.
As earlier noted, UBI's own top management, specifically Bartolome III,
its chairman of the Board, and the petitioner himself, its president,
continually provided the BSP the picture of the worsening situation of
UBI in the four (4) weeks from March 20, 2000 to April 25, 2000, leading
to UBI's unilateral declaration of a bank holiday on April 25, 2000.
[12]
cralaw Their constant reporting showed that UBI was "unable to pay
its liabilities as they become due in the ordinary course of business; (or
that it) has insufficient realizable assets, as determined by the Bangko
Sentral, to meet its liabilities."[13]cralaw While other factors might have
weighed in the analysis of UBI's financial liquidity and in the preparation
of the inevitable Supervisor and Examination Sector (SES) reports, the
MB considered the constant reports of UBI's own top management as the
best proof of its dire liquidity status.

Section 30(a) of RA 7653, otherwise known as the New Central Bank Act,
is relevant. Under that law, the Monetary Board may execute measures
such those taken in this case, summarily and without need of prior
hearing:
Sec. 30. Proceedings in Receivership and Liquidation. -Whenever, upon
report of the head of the supervising and examining department, the
Monetary Board finds that the Bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the
ordinary course of business:Provided, that this shall not include
inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
(b) has insufficient realizable asset, as determined by the Bangko
Sentral to meet its liabilities; or
Petitioner would have this Court review and reverse factual findings of
the Court of Appeals. This, of course, the Court cannot and will not do.
Review of factual findings of the appellate court is not a function
ordinarily undertaken by this Court, the rule admitting only a few
exceptions recognized in decisional law. The principle is consistent with
Rule 45 of the Rules of Court which categorically provides that a petition
for review on certiorari must raise "only questions of law which must be
distinctly set forth" in the petition. Even then, the review sought will be
denied if the questions raised are "too unsubstantial to require
consideration" or if the Court is not convinced of the existence of "special
and important reasons" to warrant review, of which none exists in this
case.
All told, we find that no reversible error was committed by the
17th Division of Court of Appeals when it reversed and set aside the July
2, 2002 and July 30, 2002 Orders of the Ombudsman in OMB-ADM-0-00-
0867.

(c) cannot continue in business without involving probable losses to its WHEREFORE, the instant petition is hereby DENIED DUE COURSE.
creditors; or

SO ORDERED.
(d) has willfully violated a cease and desist order under Section 37
that has become final, involving acts or transactions which amount to
fraud or a dissipation of the assets of the institution; in which cases, the Very truly yours,
Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the
(Sgd.) LUCITA ABJELINA-SORIANO
Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the Banking institution. xxx. (Emphasis
supplied) Asst. Clerk of Court

Pertinent, too, is Section 53 of Republic Act No. 8791, [10]cralaw since it

underscores the summary character of the MB's initiative of placing a
bank under receivership. It provides that in case a bank or quasi-
banknotifies the BSP or publicly announces a bank holiday, or in any
manner suspends the payment of its deposit liabilities continuously for
more than 30 days, the MB may summarily and without need of prior
hearing close such banking institution and place it under receivership of
the PDIC.

This authority is beyond review by the courts except on a petition for

certiorari. Here, it is worth to note even the Ombudsman found
significant evidence to rationalize the decision of the Monetary Board to
place UBI under receivership.

Likewise, we agree with the appellate court's 17 th Division in its

ratiocination that it is illogical to hold the respondents administratively
liable for the preparation of reports that are, in their nature, merely
recommendatory and have to be acted upon by superior officials. The
reports were not the final action that creates right and duties and affects
the interest and fortunes of third parties. Courts do not interfere with
any administrative measure prior to its completion or finality, and when

G.R. No. 115849 January 24, 1996
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers
Bank of the Philippines) and MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO,respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by
bank officers in an exchange of letters and/or in a meeting with the
buyers constitute a perfected and enforceable contract of sale over 101
hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent
authority" apply in this case? If so, may the Central Bank-appointed
conservator of Producers Bank (now First Philippine International Bank)
repudiate such "apparent authority" after said contract has been deemed
perfected? During the pendency of a suit for specific performance, does
the filing of a "derivative suit" by the majority shareholders and directors
of the distressed bank to prevent the enforcement or implementation of
the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in
the instant Petition for review on certiorariunder Rule 45 of the Rules of
Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution
promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by
the elimination of the damages awarded under paragraphs 3,
4 and 6 of its dispositive portion and the reduction of the
award in paragraph 5 thereof to P75,000.00, to be assessed
against defendant bank. In all other aspects, said decision is
hereby AFFIRMED.
All references to the original plaintiffs in the decision and its
dispositive portion are deemed, herein and hereafter, to
legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10, 1991,
on the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiffs and against the defendants
as follows:
1. Declaring the existence of a perfected contract to buy and
sell over the six (6) parcels of land situated at Don Jose, Sta.
Rosa, Laguna with an area of 101 hectares, more or less,
covered by and embraced in Transfer Certificates of Title Nos.
T-106932 to T-106937, inclusive, of the Land Records of
Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon
finality of this decision and receipt from the plaintiffs the
amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels
of land, and to immediately deliver to the plaintiffs the
owner's copies of T.C.T. Nos. T-106932 to T- 106937,
inclusive, for purposes of registration of the same deed and
transfer of the six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay
plaintiffs Jose A. Janolo and Demetrio Demetria the sums of
P200,000.00 each in moral damages;
48
4. Ordering the defendants, jointly and severally, to pay
plaintiffs the sum of P100,000.00 as exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the
plaintiffs the amount of P400,000.00 for and by way of
attorney's fees;
6. Ordering the defendants to pay the plaintiffs, jointly and
severally, actual and moderate damages in the amount of
P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and
reply to sur-rejoinder, the petition was given due course in a Resolution
dated January 18, 1995. Thence, the parties filed their respective
memoranda and reply memoranda. The First Division transferred this
case to the Third Division per resolution dated October 23, 1995. After
carefully deliberating on the aforesaid submissions, the Court assigned
the case to the undersigned ponentefor the writing of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of
the Philippines; petitioner Bank, for brevity) is a banking institution
organized and existing under the laws of the Republic of the Philippines.
Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age
and was, at all times material to this case, Head-Manager of the Property
Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal
age and is the assignee of original plaintiffs-appellees Demetrio Demetria
and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and
Resolution sought to be set aside through this petition.
The Facts
The facts of this case are summarized in the respondent Court's
Decision3 as follows:
(1) In the course of its banking operations, the defendant
Producer Bank of the Philippines acquired six parcels of land
with a total area of 101 hectares located at Don Jose, Sta.
Rose, Laguna, and covered by Transfer Certificates of Title
Nos. T-106932 to T-106937. The property used to be owned
by BYME Investment and Development Corporation which had
them mortgaged with the bank as collateral for a loan. The
original plaintiffs, Demetrio Demetria and Jose O. Janolo,
wanted to purchase the property and thus initiated
negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the
suggestion of BYME investment's legal counsel, Jose Fajardo,
met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting
was held pursuant to plaintiffs' plan to buy the property (TSN
of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal
purchase offer to the bank through a letter dated August 30,
1987 (Exh. "B"), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
 49

Attn. Mr. Mercurio Q. Rivera (4) On September 17, 1987, plaintiff Janolo, responding to
Manager, Property Management Dept. Rivera's aforequoted reply, wrote (Exh. "D"):

Gentleman:

September 17, 1987

I have the honor to submit my formal offer to purchase your
properties covered by titles listed hereunder located at Sta.
Rosa, Laguna, with a total area of 101 hectares, more or less.
Producers Bank
Paseo de Roxas
Makati, Metro Manila
TCT NO. AREA

Attention: Mr. Mercurio Rivera

T-106932 113,580 sq. m. Gentlemen:

In reply to your letter regarding my proposal to purchase your

101-hectare lot located at Sta. Rosa, Laguna, I would like to
T-106933 70,899 sq. m. amend my previous offer and I now propose to buy the said
lot at P4.250 million in CASH..

Hoping that this proposal meets your satisfaction.

T-106934 52,246 sq. m.
(5) There was no reply to Janolo's foregoing letter of
September 17, 1987. What took place was a meeting on
September 28, 1987 between the plaintiffs and Luis Co, the
T-106935 96,768 sq. m. Senior Vice-President of defendant bank. Rivera as well as
Fajardo, the BYME lawyer, attended the meeting. Two days
later, or on September 30, 1987, plaintiff Janolo sent to the
bank, through Rivera, the following letter (Exh. "E"):

T-106936 187,114 sq. m.

The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila

T-106937 481,481 sq. m.

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land

My offer is for PESOS: THREE MILLION FIVE HUNDRED
THOUSAND (P3,500,000.00) PESOS, in cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf
of the bank a formal reply by letter which is hereunder quoted
(Exh. "C"):
in Sta. Rosa, Laguna
Gentlemen:
Pursuant to our discussion last 28 September 1987, we are
pleased to inform you that we are accepting your offer for us
to purchase the property at Sta. Rosa, Laguna, formerly
owned by Byme Investment, for a total price of PESOS: FIVE
MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).

Thank you.
September 1, 1987
(6) On October 12, 1987, the conservator of the bank (which
has been placed under conservatorship by the Central Bank
since 1984) was replaced by an Acting Conservator in the
JP M-P GUTIERREZ ENTERPRISES person of defendant Leonida T. Encarnacion. On November 4,
142 Charisma St., Doña Andres II 1987, defendant Rivera wrote plaintiff Demetria the following
Rosario, Pasig, Metro Manila letter (Exh. "F"):

Attention: JOSE O. JANOLO Attention: Atty. Demetrio Demetria

Dear Sir: Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of
acquired lots at Sta. Rosa, Laguna (formerly owned by Byme
Industrial Corp.). Please be informed however that the bank's
counter-offer is at P5.5 million for more than 101 hectares on
lot basis.
Your proposal to buy the properties the bank foreclosed from
Byme investment Corp. located at Sta. Rosa, Laguna is under
study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the
bank.

We shall be very glad to hear your position on the on the For your information.
matter.

(7) What thereafter transpired was a series of demands by the

Best regards. plaintiffs for compliance by the bank with what plaintiff

considered as a perfected contract of sale, which demands
were in one form or another refused by the bank. As detailed
by the trial court in its decision, on November 17, 1987,
plaintiffs through a letter to defendant Rivera (Exhibit "G")
tendered payment of the amount of P5.5 million "pursuant to
(our) perfected sale agreement." Defendants refused to
receive both the payment and the letter. Instead, the parcels
of land involved in the transaction were advertised by the
bank for sale to any interested buyer (Exh, "H" and "H-1").
Plaintiffs demanded the execution by the bank of the
documents on what was considered as a "perfected
agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O.
Janolo, to purchase your 101-hectare lot located in Sta. Rosa,
Laguna, and which are covered by TCT No. T-106932 to
106937.
From the documents at hand, it appears that your counter-
offer dated September 1, 1987 of this same lot in the amount
of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5,
1987.
In view of the above circumstances, we believe that an
agreement has been perfected. We were also informed that
despite repeated follow-up to consummate the purchase, you
now refuse to honor your commitment. Instead, you have
advertised for sale the same lot to others.
In behalf of our client, therefore, we are making this formal
demand upon you to consummate and execute the necessary
actions/documentation within three (3) days from your receipt
hereof. We are ready to remit the agreed amount of P5.5
million at your advice. Otherwise, we shall be constrained to
file the necessary court action to protect the interest of our
client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged
receipt of the foregoing letter and stated, in its
communication of December 2, 1987 (Exh. "I"), that said
letter has been "referred . . . to the office of our Conservator
for proper disposition" However, no response came from the
Acting Conservator. On December 14, 1987, the plaintiffs
made a second tender of payment (Exh. "L" and "L-1"), this
time through the Acting Conservator, defendant Encarnacion.
Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr.
JOSE O. JANOLO, MBTC Check No. 258387 in the amount of
P5.5 million as our agreed purchase price of the 101-hectare
lot covered by TCT Nos. 106932, 106933, 106934, 106935,
106936 and 106937 and registered under Producers Bank.
This is in connection with the perfected agreement
consequent from your offer of P5.5 Million as the purchase
price of the said lots. Please inform us of the date of
documentation of the sale immediately.
50
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four
months. Then, on May 3, 1988, plaintiff, through counsel,
made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale
(Exhibit "N"). As recounted by the trial court (Original Record,
p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants
through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings
with the plaintiffs, particularly his counter-offer of P5.5 Million
are unauthorized or illegal. On that basis, the defendants
justified the refusal of the tenders of payment and the non-
compliance with the obligations under what the plaintiffs
considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific
performance with damages against the bank, its Manager
Rivers and Acting Conservator Encarnacion. The basis of the
suit was that the transaction had with the bank resulted in a
perfected contract of sale, The defendants took the position
that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there
was no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co),
through counsel Sycip Salazar Hernandez and Gatmaitan, filed
a motion to intervene in the trial court, alleging that as owner
of 80% of the Bank's outstanding shares of stock, he had a
substantial interest in resisting the complaint. On July 8, 1991,
the trial court issued an order denying the motion to intervene
on the ground that it was filed after trial had already been
concluded. It also denied a motion for reconsideration filed
thereafter. From the trial court's decision, the Bank, petitioner
Rivera and conservator Encarnacion appealed to the Court of
Appeals which subsequently affirmed with modification the
said judgment. Henry Co did not appeal the denial of his
motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito
was substituted in place of Demetria and Janolo, in view of the
assignment of the latters' rights in the matter in litigation to said private
respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of
Appeals, Henry Co and several other stockholders of the Bank, through
counsel Angara Abello Concepcion Regala and Cruz, filed an action
(hereafter, the "Second Case") — purportedly a "derivative suit" — with
the Regional Trial Court of Makati, Branch 134, docketed as Civil Case
No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any
perfected sale of the property as unenforceable and to stop Ejercito from
enforcing or implementing the sale"4 In his answer, Janolo argued that
the Second Case was barred by litis pendentia by virtue of the case then
pending in the Court of Appeals. During the pre-trial conference in the
Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the
Case Without Prejudice. "Private respondent opposed this motion on the
ground, among others, that plaintiff's act of forum shopping justifies the
dismissal of both cases, with prejudice."5 Private respondent, in his
memorandum, averred that this motion is still pending in the Makati RTC.
In their Petition6 and Memorandum7 , petitioners summarized their
position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale
was perfected between Ejercito (in substitution of Demetria
and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an
enforceable contract of sale between the parties.
III.

The Court of Appeals erred in declaring that the conservator
does not have the power to overrule or revoke acts of
previous management.
IV.
The findings and conclusions of the Court of Appeals do not
conform to the evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit on
the ground8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals
are supported by the evidence on record and may no longer
be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected
contract between Demetria and Janolo (substituted by;
respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator,
apart from being estopped from repudiating the agency and
the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may
be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the
parties?
3) Assuming there was, was the said contract enforceable
under the statute of frauds?
4) Did the bank conservator have the unilateral power to
repudiate the authority of the bank officers and/or to revoke
the said contract?
5) Did the respondent Court commit any reversible error in its
findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the
Supreme Court promulgated Revised Circular No. 28-91 requiring that a
party "must certify under oath . . . [that] (a) he has not (t)heretofore
commenced any other action or proceeding involving the same issues in
the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no such action or proceeding is
pending" in said courts or agencies. A violation of the said circular entails
sanctions that include the summary dismissal of the multiple petitions or
complaints. To be sure, petitioners have included a
VERIFICATION/CERTIFICATION in their Petition stating "for the record(,)
the pendency of Civil Case No. 92-1606 before the Regional Trial Court
of Makati, Branch 134, involving a derivative suit filed by stockholders of
petitioner Bank against the conservator and other defendants but which
is the subject of a pending Motion to Dismiss Without Prejudice. 9
51
Private respondent Ejercito vigorously argues that in spite of this
verification, petitioners are guilty of actual forum shopping because the
instant petition pending before this Court involves "identical parties or
interests represented, rights asserted and reliefs sought (as that)
currently pending before the Regional Trial Court, Makati Branch 134 in
the Second Case. In fact, the issues in the two cases are so interwined
that a judgement or resolution in either case will constitute res
judicata in the other." 10
On the other hand, petitioners explain 11
that there is no forum-shopping
because:
1) In the earlier or "First Case" from which this proceeding
arose, the Bank was impleaded as a defendant, whereas in
the "Second Case" (assuming the Bank is the real party in
interest in a derivative suit), it wasplaintiff;
2) "The derivative suit is not properly a suit for and in behalf
of the corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra)
signed by the Bank president and attached to the Petition
identifies the action as a "derivative suit," it "does not mean
that it is one" and "(t)hat is a legal question for the courts to
decide";
4) Petitioners did not hide the Second Case at they mentioned
it in the said VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private
international law.12 , where non-resident litigants are given the option to
choose the forum or place wherein to bring their suit for various reasons
or excuses, including to secure procedural advantages, to annoy and
harass the defendant, to avoid overcrowded dockets, or to select a more
friendly venue. To combat these less than honorable excuses, the
principle of forum non conveniens was developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it
is not the most "convenient" or available forum and the parties are not
precluded from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs
when a party attempts to have his action tried in a particular court or
jurisdiction where he feels he will receive the most favorable judgment or
verdict." Hence, according to Words and Phrases14 , "a litigant is open to
the charge of "forum shopping" whenever he chooses a forum with slight
connection to factual circumstances surrounding his suit, and litigants
should be encouraged to attempt to settle their differences without
imposing undue expenses and vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation
encompassing not only a choice of venues, as it was originally
understood in conflicts of laws, but also to a choice of remedies. As to
the first (choice of venues), the Rules of Court, for example, allow a
plaintiff to commence personal actions "where the defendant or any of
the defendants resides or may be found, or where the plaintiff or any of
the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]).
As to remedies, aggrieved parties, for example, are given a choice of
pursuing civil liabilities independently of the criminal, arising from the
same set of facts. A passenger of a public utility vehicle involved in a
vehicular accident may sue on culpa contractual, culpa aquiliana or culpa
criminal — each remedy being available independently of the others —
although he cannot recover more than once.
In either of these situations (choice of venue or choice of
remedy), the litigant actually shops for a forum of his action,
This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of
the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all
available courts, or invoke all relevant remedies
simultaneously. This practice had not only resulted to (sic)
conflicting adjudications among different courts and
consequent confusion enimical (sic) to an orderly

administration of justice. It had created extreme
inconvenience to some of the parties to the action.
Thus, "forum shopping" had acquired a different concept —
which is unethical professional legal practice. And this
necessitated or had given rise to the formulation of rules and
canons discouraging or altogether prohibiting the practice. 15
What therefore originally started both in conflicts of laws and in our
domestic law as a legitimate device for solving problems has been
abused and mis-used to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the
Supreme Court, as already mentioned, promulgated Circular 28-91. And
even before that, the Court had prescribed it in the Interim Rules and
Guidelines issued on January 11, 1983 and had struck down in several
cases 16 the inveterate use of this insidious malpractice. Forum shopping
as "the filing of repetitious suits in different courts" has been condemned
by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural
Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible
manipulation of court processes and proceedings . . ." 17 when does
forum shopping take place?
There is forum-shopping whenever, as a result of an adverse
opinion in one forum, a party seeks a favorable opinion (other
than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an
administrative proceeding is pending, as in this case, in order
to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which
the second suit was brought, has no jurisdiction.18
The test for determining whether a party violated the rule against forum
shopping has been laid dawn in the 1986 case of Buan vs. Lopez 19 , also
by Chief Justice Narvasa, and that is, forum shopping exists where the
elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and
RTC Case No. 86-36563 identity of parties, or at least such
parties as represent the same interests in both actions, as well
as identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and the identity on the two
preceding particulars is such that any judgment rendered in
the other action, will, regardless of which party is successful,
amount to res adjudicata in the action under consideration: all
the requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and
RTC Case No. 86-36563, an identity as regards parties, or
interests represented, rights asserted and relief sought, as
well as basis thereof, to a degree sufficient to give rise to the
ground for dismissal known as auter action pendant or lis
pendens. That same identity puts into operation the sanction
of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the
controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional
Trial Court in Civil Case No. 86-36563 promulgated on July 15,
1986, which dismissed the petition upon grounds which
appear persuasive.
Consequently, where a litigant (or one representing the same interest or
person) sues the same party against whom another action or actions for
the alleged violation of the same right and the enforcement of the same
relief is/are still pending, the defense of litis pendencia in one case is bar
to the others; and, a final judgment in one would constitute res
judicata and thus would cause the dismissal of the rest. In either case,
forum shopping could be cited by the other party as a ground to ask for
summary dismissal of the two 20 (or more) complaints or petitions, and
for imposition of the other sanctions, which are direct contempt of court,
criminal prosecution, and disciplinary action against the erring lawyer.
52
Applying the foregoing principles in the case before us and comparing it
with the Second Case, it is obvious that there exist identity of parties or
interests represented, identity of rights or causes and identity of reliefs
sought.
Very simply stated, the original complaint in the court a quo which gave
rise to the instant petition was filed by the buyer (herein private
respondent and his predecessors-in-interest) against the seller (herein
petitioners) to enforce the alleged perfected sale of real estate. On the
other hand, the complaint 21 in the Second Case seeks to declare such
purported sale involving the same real property "as unenforceable as
against the Bank", which is the petitioner herein. In other words, in the
Second Case, the majority stockholders, in representation of the Bank,
are seeking to accomplish what the Bank itself failed to do in the original
case in the trial court. In brief, the objective or the relief being sought,
though worded differently, is the same, namely, to enable the petitioner
Bank to escape from the obligation to sell the property to respondent. In
Danville Maritime, Inc. vs. Commission on Audit. 22 , this Court ruled that
the filing by a party of two apparently different actions, but with
the same objective, constituted forum shopping:
In the attempt to make the two actions appear to be different,
petitioner impleaded different respondents therein — PNOC in
the case before the lower court and the COA in the case
before this Court and sought what seems to be different
reliefs. Petitioner asks this Court to set aside the questioned
letter-directive of the COA dated October 10, 1988 and to
direct said body to approve the Memorandum of Agreement
entered into by and between the PNOC and petitioner, while
in the complaint before the lower court petitioner seeks to
enjoin the PNOC from conducting a rebidding and from selling
to other parties the vessel "T/T Andres Bonifacio", and for an
extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that
although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is
the same, that is, approval of the sale of vessel in favor of
petitioner and to overturn the letter-directive of the COA of
October 10, 1988 disapproving the sale. (emphasis supplied).
In an earlier case 23
but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant
special civil action for certiorari and prohibition in this Court
despite the pendency of their action in the Makati Regional
Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same
essential facts and circumstances. The petitioners' claim of
absence of identity simply because the PCGG had not been
impleaded in the RTC suit, and the suit did not involve certain
acts which transpired after its commencement, is specious. In
the RTC action, as in the action before this Court, the validity
of the contract to purchase and sell of September 1,
1986, i.e., whether or not it had been efficaciously rescinded,
and the propriety of implementing the same (by paying the
pledgee banks the amount of their loans, obtaining the
release of the pledged shares, etc.) were the basic issues. So,
too, the relief was the same: the prevention of such
implementation and/or the restoration of the status quo ante.
When the acts sought to be restrained took place anyway
despite the issuance by the Trial Court of a temporary
restraining order, the RTC suit did not become functus oficio.
It remained an effective vehicle for obtention of relief; and
petitioners' remedy in the premises was plain and patent: the
filing of an amended and supplemental pleading in the RTC
suit, so as to include the PCGG as defendant and seek
nullification of the acts sought to be enjoined but nonetheless
done. The remedy was certainly not the institution of another
action in another forum based on essentially the same facts,
The adoption of this latter recourse renders the petitioners
amenable to disciplinary action and both their actions, in this
Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least,
of interests represented. Although the plaintiffs in the Second Case
(Henry L. Co. et al.) are not name parties in the First Case, they
represent the same interest and entity, namely, petitioner Bank,
because:

Firstly, they are not suing in their personal capacities, for they have no
direct personal interest in the matter in controversy. They are not
principally or even subsidiarily liable; much less are they direct parties in
the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that
the stockholders are bringing a "derivative suit". In the caption itself,
petitioners claim to have brought suit "for and in behalf of the Producers
Bank of the Philippines" 24 . Indeed, this is the very essence of a
derivative suit:
An individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holdsstock in
order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be
sued or hold the control of the corporation. In such actions,
the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).
In the face of the damaging admissions taken from the complaint in the
Second Case, petitioners, quite strangely, sought to deny that the
Second Case was a derivative suit, reasoning that it was brought, not by
the minority shareholders, but by Henry Co et al., who not only own,
hold or control over 80% of the outstanding capital stock, but also
constitute the majority in the Board of Directors of petitioner Bank. That
being so, then they really represent the Bank. So, whether they sued
"derivatively" or directly, there is undeniably an identity of
interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the
personality Of the Bank is separate and distinct from its shareholders.
But the rulings of this Court are consistent: "When the fiction is urged as
a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of
individuals." 25
In addition to the many cases 26 where the corporate fiction has been
disregarded, we now add the instant case, and declare herewith that the
corporate veil cannot be used to shield an otherwise blatant violation of
the prohibition against forum-shopping. Shareholders, whether suing as
the majority in direct actions or as the minority in a derivative suit,
cannot be allowed to trifle with court processes, particularly where, as in
this case, the corporation itself has not been remiss in vigorously
prosecuting or defending corporate causes and in using and applying
remedies available to it. To rule otherwise would be to encourage
corporate litigants to use their shareholders as fronts to circumvent the
stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping,
even assuming arguendo that there is identity of parties, causes of action
and reliefs sought, "because it (the Bank) was the defendant in the (first)
case while it was the plaintiff in the other (Second Case)",citing as
authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63,
Makati, etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for
reasons known only to him, commences a new action against
the plaintiff — instead of filing a responsive pleading in the
other case — setting forth therein, as causes of action,
specific denials, special and affirmative defenses or even
counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of
forum-shopping as such did not exist in the first place.
(emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the
original case, it could not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in
factual setting between Victronics and the present suit. In the former, as
underscored in the above-quoted Court ruling, the defendants did not file
any responsive pleading in the first case. In other words, they did not
53
make any denial or raise any defense or counter-claim therein In the
case before us however, petitioners filed a responsive pleading to the
complaint — as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter–claims
in their responsive pleadings, the petitioners became plaintiffs
themselves in the original case, giving unto themselves the very
remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether
forum-shopping exists or not is the vexation caused the courts and
parties-litigant by a party who asks different courts and/or administrative
agencies to rule on the same or related causes and/or to grant the same
or substantially the same reliefs, in the process creating the possibility of
conflicting decisions being rendered by the different fora upon the same
issue. In this case, this is exactly the problem: a decision recognizing the
perfection and directing the enforcement of the contract of sale will
directly conflict with a possible decision in the Second Case barring the
parties front enforcing or implementing the said sale. Indeed, a final
decision in one would constitute res judicata in the other 28 .
The foregoing conclusion finding the existence of forum-shopping
notwithstanding, the only sanction possible now is the dismissal of both
cases with prejudice, as the other sanctions cannot be imposed because
petitioners' present counsel entered their appearance only during the
proceedings in this Court, and the Petition's
VERIFICATION/CERTIFICATION contained sufficient allegations as to the
pendency of the Second Case to show good faith in observing Circular
28-91. The Lawyers who filed the Second Case are not before us; thus
the rudiments of due process prevent us from motu propio imposing
disciplinary measures against them in this Decision. However, petitioners
themselves (and particularly Henry Co, et al.) as litigants are admonished
to strictly follow the rules against forum-shopping and not to trifle with
court proceedings and processes They are warned that a repetition of
the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be
dismissed not merely because of forum-shopping but also because of the
substantive issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not
there was, on the basis of the facts established, a perfected contract of
sale as the ultimate issue. Holding that a valid contract has been
established, respondent Court stated:
There is no dispute that the object of the transaction is that
property owned by the defendant bank as acquired assets
consisting of six (6) parcels of land specifically identified under
Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the
property. As testified to by the Bank's Deputy Conservator,
Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plaintiffs wanted to purchase
the property and it was precisely for this purpose that they
met with defendant Rivera, Manager of the Property
Management Department of the defendant bank, in early
August 1987. The procedure in the sale of acquired assets as
well as the nature and scope of the authority of Rivera on the
matter is clearly delineated in the testimony of Rivera himself,
which testimony was relied upon by both the bank and by
Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp.
19-20):
A: The procedure runs this way: Acquired assets
was turned over to me and then I published it in
the form of an inter-office memorandum distributed
to all branches that these are acquired assets for
sale. I was instructed to advertise acquired assets
for sale so on that basis, I have to entertain offer;
to accept offer, formal offer and upon having been
offered, I present it to the Committee. I provide
the Committee with necessary information about
the property such as original loan of the borrower,
bid price during the foreclosure, total claim of the
bank, the appraised value at the time the property

is being offered for sale and then the information
which are relative to the evaluation of the bank to
buy which the Committee considers and it is the
Committee that evaluate as against the exposure of
the bank and it is also the Committee that submit
to the Conservator for final approval and once
approved, we have to execute the deed of sale and
it is the Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987
regarding their purpose of buying the property, dealt with and
talked to the right person. Necessarily, the agenda was the
price of the property, and plaintiffs were dealing with the bank
official authorized to entertain offers, to accept offers and to
present the offer to the Committee before which the said
official is authorized to discuss information relative to price
determination. Necessarily, too, it being inherent in his
authority, Rivera is the officer from whom official information
regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera
confirmed his authority when he talked with the plaintiff in
August 1987. The testimony of plaintiff Demetria is clear on
this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and
talked with Mr. Mercurio Rivera, did you ask him
point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from
him, (W)hen I asked him how long it would take
because he was saying that the matter of pricing
will be passed upon by the committee. And when I
asked him how long it will take for the committee
to decide and he said the committee meets every
week. If I am not mistaken Wednesday and in
about two week's (sic) time, in effect what he was
saying he was not the one who was to decide. But
he would refer it to the committee and he would
relay the decision of the committee to me.
Q — Please answer the question.
A — He did not say that he had the authority (.)
But he said he would refer the matter to the
committee and he would relay the decision to me
and he did just like that.
"Parenthetically, the Committee referred to was the Past Due
Committee of which Luis Co was the Head, with Jose Entereso
as one of the members.
What transpired after the meeting of early August 1987 are
consistent with the authority and the duties of Rivera and the
bank's internal procedure in the matter of the sale of bank's
assets. As advised by Rivera, the plaintiffs made a formal offer
by a letter dated August 20, 1987 stating that they would buy
at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and
accept such offers. Considering an aspect of the official duty
of Rivera as some sort of intermediary between the plaintiffs-
buyers with their proposed buying price on one hand, and the
bank Committee, the Conservator and ultimately the bank
itself with the set price on the other, and considering further
the discussion of price at the meeting of August resulting in a
formal offer of P3.5 Million in cash, there can be no other
logical conclusion than that when, on September 1, 1987,
Rivera informed plaintiffs by letter that "the bank's counter-
offer is at P5.5 Million for more than 101 hectares on lot
basis," such counter-offer price had been determined by the
Past Due Committee and approved by the Conservator after
Rivera had duly presented plaintiffs' offer for discussion by the
Committee of such matters as original loan of borrower, bid
price during foreclosure, total claim of the bank, and market
value. Tersely put, under the established facts, the price of
P5.5 Million was, as clearly worded in Rivera's letter (Exh.
"E"), the official and definitive price at which the bank was
selling the property.
54
There were averments by defendants below, as well as before
this Court, that the P5.5 Million price was not discussed by the
Committee and that price. As correctly characterized by the
trial court, this is not credible. The testimonies of Luis Co and
Jose Entereso on this point are at best equivocal and
considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not
inspire belief. Both Co ad Entereso, as members of the Past
Due Committee of the bank, claim that the offer of the
plaintiff was never discussed by the Committee. In the same
vein, both Co and Entereso openly admit that they seldom
attend the meetings of the Committee. It is important to note
that negotiations on the price had started in early August and
the plaintiffs had already offered an amount as purchase
price, having been made to understand by Rivera, the official
in charge of the negotiation, that the price will be submitted
for approval by the bank and that the bank's decision will be
relayed to plaintiffs. From the facts, the official bank price. At
any rate, the bank placed its official, Rivera, in a position of
authority to accept offers to buy and negotiate the sale by
having the offer officially acted upon by the bank. The bank
cannot turn around and later say, as it now does, that what
Rivera states as the bank's action on the matter is not in fact
so. It is a familiar doctrine, the doctrine of ostensible
authority, that if a corporation knowingly permits one of its
officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the
corporation through such agent, he estopped from denying his
authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v.
Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v.
Court of Appeals, G.R. No. 103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: "(1) Consent of the contracting parties; (2)
Object certain which is the subject matter of the contract; (3) Cause of
the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned
contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with
an aggregate area of about 101 hectares, more or less, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. There is,
however, a dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and
any supposed counter-offer which Rivera (or Co) may have made is
unauthorized. Since there was no counter-offer by the Bank, there was
nothing for Ejercito (in substitution of Demetria and Janolo) to
accept." 30 They disputed the factual basis of the respondent Court's
findings that there was an offer made by Janolo for P3.5 million, to which
the Bank counter-offered P5.5 million. We have perused the evidence but
cannot find fault with the said Court's findings of fact. Verily, in a petition
under Rule 45 such as this, errors of fact — if there be any - are, as a
rule, not reviewable. The mere fact that respondent Court (and the trial
court as well) chose to believe the evidence presented by respondent
more than that presented by petitioners is not by itself a reversible error.
In fact, such findings merit serious consideration by this Court,
particularly where, as in this case, said courts carefully and meticulously
discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the
Court of Appeals, let us review the question of Rivera's authority to act
and petitioner's allegations that the P5.5 million counter-offer was
extinguished by the P4.25 million revised offer of Janolo. Here, there are
questions of law which could be drawn from the factual findings of the
respondent Court. They also delve into the contractual elements of
consent and cause.
The authority of a corporate officer in dealing with third persons may be
actual or apparent. The doctrine of "apparent authority", with special
reference to banks, was laid out in Prudential Bank vs. Court of
Appeals31 , where it was held that:
Conformably, we have declared in countless decisions that the
principal is liable for obligations contracted by the agent. The
agent's apparent representation yields to the principal's true
representation and the contract is considered as entered into

between the principal and the third person (citing National
Food Authority vs. Intermediate Appellate Court, 184 SCRA
166).
A bank is liable for wrongful acts of its officers
done in the interests of the bank or in the course of
dealings of the officers in their representative
capacity but not for acts outside the scape of their
authority (9 C.J.S., p. 417). A bank holding out its
officers and agents as worthy of confidence will not
be permitted to profit by the frauds they may thus
be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk
its responsibility for such frauds even though no
benefit may accrue to the bank therefrom (10 Am
Jur 2d, p. 114). Accordingly, a banking corporation
is liable to innocent third persons where the
representation is made in the course of its business
by an agent acting within the general scope of his
authority even though, in the particular case, the
agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal
or some other person, for his own ultimate benefit
(McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW
818, 40 ALR 1021).
Application of these principles is especially necessary because
banks have a fiduciary relationship with the public and their
stability depends on the confidence of the people in their
honesty and efficiency. Such faith will be eroded where banks
do not exercise strict care in the selection and supervision of
its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that
petitioner Rivera has apparent or implied authority to act for the Bank in
the matter of selling its acquired assets. This evidence includes the
following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was
"at all times material to this case, Manager of the Property
Management Department of the Bank". By his own admission,
Rivera was already the person in charge of the Bank's
acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely
being sold by the Bank. And during the initial meeting
between the buyers and Rivera, the latter suggested that the
buyers' offer should be no less than P3.3 million (TSN, April
26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987
offering P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering
to sell the property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987
containing the buyers' proposal to buy the property for P4.25
million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the
P5.5 million was the final price of the Bank (TSN, January 16,
1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis
Co on September 28, 1994, during which the Bank's offer of
P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp.
34-35). At said meeting, Co, a major shareholder and officer
of the Bank, confirmed Rivera's statement as to the finality of
the Bank's counter-offer of P5.5 million (TSN, January 16,
1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the
Bank referred to Rivera as the officer acting for the Bank in
relation to parties interested in buying assets owned/acquired
by the Bank. In fact, Rivera was the officer mentioned in the
55
Bank's advertisements offering for sale the property in
question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of
Appeals, et. al.32 , the Court, through Justice Jose A. R. Melo, affirmed
the doctrine of apparent authority as it held that the apparent authority
of the officer of the Bank of P.I. in charge of acquired assets is borne out
by similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent
authority through documents and testimony which seek to establish
Rivera's actual authority. These pieces of evidence, however, are
inherently weak as they consist of Rivera's self-serving testimony and
various inter-office memoranda that purport to show his limited actual
authority, of which private respondent cannot be charged with
knowledge. In any event, since the issue is apparent authority, the
existence of which is borne out by the respondent Court's findings, the
evidence of actual authority is immaterial insofar as the liability of a
corporation is concerned 33 .
Petitioners also argued that since Demetria and Janolo were experienced
lawyers and their "law firm" had once acted for the Bank in three
criminal cases, they should be charged with actual knowledge of Rivera's
limited authority. But the Court of Appeals in its Decision (p. 12) had
already made a factual finding that the buyers had no notice of Rivera's
actual authority prior to the sale. In fact, the Bank has not shown that
they acted as its counsel in respect to any acquired assets; on the other
hand, respondent has proven that Demetria and Janolo merely
associated with a loose aggrupation of lawyers (not a professional
partnership), one of whose members (Atty. Susana Parker) acted in said
criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million
counter-offer in the letter dated September 17, 1987 extinguished the
Bank's offer of P5.5 million 34 .They disputed the respondent Court's
finding that "there was a meeting of minds when on 30 September 1987
Demetria and Janolo through Annex "L" (letter dated September 30,
1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J"
(letter dated September 17, 1987)", citingthe late Justice Paras35 , Art.
1319 of the Civil Code 36 and related Supreme Court rulings starting with
Beaumont vs. Prieto 37 .
However, the above-cited authorities and precedents cannot apply in the
instant case because, as found by the respondent Court which reviewed
the testimonies on this point, what was "accepted" by Janolo in his letter
dated September 30, 1987 was the Bank's offer of P5.5 million as
confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera
and Co during their meeting on September 28, 1987. Note that the said
letter of September 30, 1987 begins with"(p)ursuant to our discussion
last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting "was
meant to have the offerors improve on their position of P5.5.
million."38 However, both the trial court and the Court of Appeals found
petitioners' testimonial evidence "not credible", and we find no basis for
changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and
the CA) common finding that private respondents' evidence is more in
keeping with truth and logic — that during the meeting on September
28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has
been passed upon by the Committee and could no longer be lowered
(TSN of April 27, 1990, pp. 34-35)"39 . Hence, assuming arguendo that
the counter-offer of P4.25 million extinguished the offer of P5.5 million,
Luis Co's reiteration of the said P5.5 million price during the September
28, 1987 meeting revived the said offer. And by virtue of the September
30, 1987 letter accepting this revived offer, there was a meeting of the
minds, as the acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion,
of Rivera's authority and action, particularly the latter's counter-offer of
P5.5 million, as being "unauthorized and illegal" came only on May 12,
1988 or more than seven (7) months after Janolo' acceptance. Such
delay, and the absence of any circumstance which might have justifiably
prevented the Bank from acting earlier, clearly characterizes the

repudiation as nothing more than a last-minute attempt on the Bank's
part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an
implied admission on the part of the petitioners that the written offer
made on September 1, 1987 was carried through during the meeting of
September 28, 1987. This is the conclusion consistent with human
experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Bank's offer
of P5.5 million was raised for the first time on appeal and should thus be
disregarded.
This Court in several decisions has repeatedly adhered to the
principle that points of law, theories, issues of fact and
arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a
reviewing court, as they cannot be raised for the first time on
appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592).40
. . . It is settled jurisprudence that an issue which was neither
averred in the complaint nor raised during the trial in the
court below cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and
due process (Dihiansan vs. CA, 153 SCRA 713 [1987];
Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty &
Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs.
IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August
30, 1990).41
Since the issue was not raised in the pleadings as an affirmative defense,
private respondent was not given an opportunity in the trial court to
controvert the same through opposing evidence. Indeed, this is a matter
of due process. But we passed upon the issue anyway, if only to avoid
deciding the case on purely procedural grounds, and we repeat that, on
the basis of the evidence already in the record and as appreciated by the
lower courts, the inevitable conclusion is simply that there was a
perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged42 :
Even assuming that Luis Co or Rivera did relay a verbal offer
to sell at P5.5 million during the meeting of 28 September
1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract
produced thereby would be unenforceable by action — there
being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see article 1403[2],
Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the
official price and the plaintiffs' acceptance of the price on
September 30, 1987, are not, in themselves, formal contracts
of sale. They are however clear embodiments of the fact that
a contract of sale was perfected between the parties, such
contract being binding in whatever form it may have been
entered into (case citations omitted). Stated simply, the
banks' letter of September 1, 1987, taken together with
plaintiffs' letter dated September 30, 1987, constitute in law a
sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications
commenced not only from September 1, 1987 but from Janolo's August
20, 1987 letter. We agree that, taken together, these letters constitute
sufficient memoranda — since they include the names of the parties, the
terms and conditions of the contract, the price and a description of the
property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a "new" offer which was accepted
56
by Janolo on September 30, 1987. Still, the statute of frauds will not
apply by reason of the failure of petitioners to object to oral testimony
proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners
— by such utter failure to object — are deemed to have waived any
defects of the contract under the statute of frauds, pursuant to Article
1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred
to in No. 2 of article 1403, are ratified by the failure to object
to the presentation of oral evidence to prove the same, or by
the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on
the reaffirmation of the counter-offer of P5.5 million is a plenty — and
the silence of petitioners all throughout the presentation makes the
evidence binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again
present because Atty. Demetria told me to accompany him we
were able to meet Luis Co at the Bank.
xxx xxx xxx
Q Now, what transpired during this meeting with Luis Co of
the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be
reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount
cited by Mr. Mercurio Rivera is the final price and that is the
price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's
statement (sic) that the defendant Rivera's counter-offer of
5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp.
18-21.]
Q What transpired during that meeting between you and Mr.
Luis Co of the defendant Bank?
A We went straight to the point because he being a busy
person, I told him if the amount of P5.5 million could still be
reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to
what Mr. Rivera stated. And he told me that is the final offer
of the bank P5.5 million and we should indicate our position
as soon as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few
days and he said that was it. Atty. Fajardo and I and Mr.
Mercurio [Rivera] was with us at the time at his office.

Q For the record, your Honor please, will you tell this Court
who was with Mr. Co in his Office in Producers Bank Building
during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your
partner accede on (sic) the counter offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our
acceptance to the bank which offer we accepted, the offer of
the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5
million was reached by the Committee and it is not within his
power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the
Committee?
A It was not discussed by the Committee but it was discussed
initially by Luis Co and the group of Atty. Demetrio Demetria
and Atty. Pajardo (sic) in that September 28, 1987 meeting,
sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator
placed by the Central Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale took place. Petitioners
energetically contended that the conservator has the power to revoke or
overrule actions of the management or the board of directors of a bank,
under Section 28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi-banking functions is in a state
of continuing inability or unwillingness to maintain a state of
liquidity deemed adequate to protect the interest of depositors
and creditors, the Monetary Board may appoint a conservator
to take charge of the assets, liabilities, and the management
of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the
assets of the institution, reorganize the management thereof,
and restore its viability. He shall have the power to overrule or
revoke the actions of the previous management and board of
directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to
the contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.
In the first place, this issue of the Conservator's alleged authority to
revoke or repudiate the perfected contract of sale was raised for the first
time in this Petition — as this was not litigated in the trial court or Court
of Appeals. As already stated earlier, issues not raised and/or ventilated
in the trial court, let alone in the Court of Appeals, "cannot be raised for
the first time on appeal as it would be offensive to the basic rules of fair
play, justice and due process."43
In the second place, there is absolutely no evidence that the
Conservator, at the time the contract was perfected, actually repudiated
or overruled said contract of sale. The Bank's acting conservator at the
time, Rodolfo Romey, never objected to the sale of the property to
Demetria and Janolo. What petitioners are really referring to is the letter
57
of Conservator Encarnacion, who took over from Romey after the sale
was perfected on September 30, 1987 (Annex V, petition) which
unilaterally repudiated — not the contract — but the authority of Rivera
to make a binding offer — and which unarguably came months after the
perfection of the contract. Said letter dated May 12, 1988 is reproduced
hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of
Attys. Janolo and Demetria regarding the six (6) parcels of
land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-
offer to any of your clients nor perfected a "contract to sell
and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986
addressed to and approved by former Acting Conservator Mr.
Andres I. Rustia, Producers Bank Senior Manager Perfecto M.
Pascua detailed the functions of Property Management
Department (PMD) staff and officers (Annex A.), you will
immediately read that Manager Mr. Mercurio Rivera or any of
his subordinates has no authority, power or right to make any
alleged counter-offer. In short, your lawyer-clients did not
deal with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of
the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of
the Central Bank Act (Rep. Act No. 265, as amended), only
the Board of Directors/Conservator may authorize the sale of
any property of the corportion/bank..
Our records do not show that Mr. Rivera was authorized by
the old board or by any of the bank conservators (starting
January, 1984) to sell the aforesaid property to any of your
clients. Apparently, what took place were just preliminary
discussions/consultations between him and your clients, which
everyone knows cannot bind the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of
payment by your clients, as the same is patently violative of
corporate and banking laws. We believe that this is more than
sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your
clients. All our acts are official, legal and in accordance with
law. We also have no personal interest in any of the
properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and
far-reaching powers to the conservator of a bank, it must be pointed out
that such powers must be related to the "(preservation of) the assets of
the bank, (the reorganization of) the management thereof and (the
restoration of) its viability." Such powers, enormous and extensive as

they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment
clause of the Constitution 44 . If the legislature itself cannot revoke an
existing valid contract, how can it delegate such non-existent powers to
the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be defective —
i.e., void, voidable, unenforceable or rescissible. Hence, the conservator
merely takes the place of a bank's board of directors. What the said
board cannot do — such as repudiating a contract validly entered into
under the doctrine of implied authority — the conservator cannot do
either. Ineluctably, his power is not unilateral and he cannot simply
repudiate valid obligations of the Bank. His authority would be only to
bring court actions to assail such contracts — as he has already done so
in the instant case. A contrary understanding of the law would simply not
be permitted by the Constitution. Neither by common sense. To rule
otherwise would be to enable a failing bank to become solvent, at the
expense of third parties, by simply getting the conservator to unilaterally
revoke all previous dealings which had one way or another or come to be
considered unfavorable to the Bank, yielding nothing to perfected
contractual rights nor vested interests of the third parties who had dealt
with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the
Rules of Court, findings of fact by the Court of Appeals are not
reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover
& Trust Corporation, 45 , we held:
. . . The rule regarding questions of fact being raised with this
Court in a petition for certiorari under Rule 45 of the Revised
Rules of Court has been stated in Remalante vs. Tibe, G.R.
No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may
be raised in a petition for certiorari under Rule 45 of the
Revised Rules of Court. "The jurisdiction of the Supreme Court
in cases brought to it from the Court of Appeals is limited to
reviewing and revising the errors of law imputed to it, its
findings of the fact being conclusive " [Chan vs. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737,
reiterating a long line of decisions]. This Court has
emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to reviewing errors of law
that might have been committed by the lower court" (Tiongco
v. De la Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA
89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No.
L-47531, February 20, 1984, 127 SCRA 596). "Barring,
therefore, a showing that the findings complained of are
totally devoid of support in the record, or that they are so
glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not
expected or required to examine or contrast the oral and
documentary evidence submitted by the parties" [Santa Ana,
Jr. vs. Hernandez, G. R. No. L-16394, December 17, 1966, 18
SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46
, we held:
The resolution of this petition invites us to closely scrutinize
the facts of the case, relating to the sufficiency of evidence
and the credibility of witnesses presented. This Court so held
that it is not the function of the Supreme Court to analyze or
weigh such evidence all over again. The Supreme Court's
jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not
a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and
Goldrock Construction and Development Corp. 47 :
The Court has consistently held that the factual findings of the
trial court, as well as the Court of Appeals, are final and
58
conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts
found by the lower courts is allowed are when the conclusion
is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above
grounds present to justify the re-evaluation of the findings of
fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea
Surety and Insurance Company Inc. vs. Hon. Court of Appeals, et al. 48 is
equally applicable to the present case:
We see no valid reason to discard the factual conclusions of
the appellate court, . . . (I)t is not the function of this Court to
assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties, particularly where,
such as here, the findings of both the trial court and the
appellate court on the matter coincide. (emphasis supplied)
Petitioners, however, assailed the respondent Court's Decision as
"fraught with findings and conclusions which were not only contrary to
the evidence on record but have no bases at all," specifically the findings
that (1) the "Bank's counter-offer price of P5.5 million had been
determined by the past due committee and approved by conservator
Romey, after Rivera presented the same for discussion" and (2) "the
meeting with Co was not to scale down the price and start negotiations
anew, but a meeting on the already determined price of P5.5 million"
Hence, citingPhilippine National Bank vs. Court of Appeals 49 , petitioners
are asking us to review and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals 50
, thus:
There can be no other logical conclusion than that when, on
September 1, 1987, Rivera informed plaintiffs by letter that
"the bank's counter-offer is at P5.5 Million for more than 101
hectares on lot basis, "such counter-offer price had been
determined by the Past Due Committee and approved by the
Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee . . . Tersely put, under the
established fact, the price of P5.5 Million was, as clearly
worded in Rivera's letter (Exh. "E"), the official and definitive
price at which the bank was selling the property. (p. 11, CA
Decision)
xxx xxx xxx
. . . The argument deserves scant consideration. As pointed
out by plaintiff, during the meeting of September 28, 1987
between the plaintiffs, Rivera and Luis Co, the senior vice-
president of the bank, where the topic was the possible
lowering of the price, the bank official refused it and
confirmed that the P5.5 Million price had been passed upon by
the Committee and could no longer be lowered (TSN of April
27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on
this point, characterizing it as "not credible" and "at best equivocal and
considering the gratuitous and self-serving character of these
declarations, the bank's submissions on this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented
then Conservator Rodolfo Romey to testify on their behalf, as he would
have been in the best position to establish their thesis. Under the rules
on evidence 51 , such suppression gives rise to the presumption that his
testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but
petitioners' evidence was deemed insufficient by both the trial court and
the respondent Court, and instead, it was respondent's submissions that
were believed and became bases of the conclusions arrived at.
 59

In fine, it is quite evident that the legal conclusions arrived at from the SO ORDERED.
findings of fact by the lower courts are valid and correct. But the
petitioners are now asking this Court to disturb these findings to fit the
conclusion they are espousing, This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may
disregard findings of fact by the Court of Appeals 52 . We have studied
both the records and the CA Decision and we find no such exceptions in
this case. On the contrary, the findings of the said Court are supported
by a preponderance of competent and credible evidence. The inferences
and conclusions are seasonably based on evidence duly identified in the
Decision. Indeed, the appellate court patiently traversed and dissected
the issues presented before it, lending credibility and dependability to its
findings. The best that can be said in favor of petitioners on this point is
that the factual findings of respondent Court did not correspond to
petitioners' claims, but were closer to the evidence as presented in the
trial court by private respondent. But this alone is no reason to reverse
or ignore such factual findings, particularly where, as in this case, the
trial court and the appellate court were in common agreement thereon.
Indeed, conclusions of fact of a trial judge — as affirmed by the Court of
Appeals — are conclusive upon this Court, absent any serious abuse or
evident lack of basis or capriciousness of any kind, because the trial
court is in a better position to observe the demeanor of the witnesses
and their courtroom manner as well as to examine the real evidence
presented.

Epilogue.

In summary, there are two procedural issues involved forum-shopping

and the raising of issues for the first time on appeal [viz., the
extinguishment of the Bank's offer of P5.5 million and the conservator's
powers to repudiate contracts entered into by the Bank's officers] —
which per se could justify the dismissal of the present case. We did not
limit ourselves thereto, but delved as well into the substantive issues —
the perfection of the contract of sale and its enforceability, which
required the determination of questions of fact. While the Supreme Court
is not a trier of facts and as a rule we are not required to look into the
factual bases of respondent Court's decisions and resolutions, we did so
just the same, if only to find out whether there is reason to disturb any
of its factual findings, for we are only too aware of the depth, magnitude
and vigor by which the parties through their respective eloquent counsel,
argued their positions before this Court.

We are not unmindful of the tenacious plea that the petitioner Bank is
operating abnormally under a government-appointed conservator and
"there is need to rehabilitate the Bank in order to get it back on its
feet . . . as many people depend on (it) for investments, deposits and
well as employment. As of June 1987, the Bank's overdraft with the
Central Bank had already reached P1.023 billion . . . and there were
(other) offers to buy the subject properties for a substantial amount of
money." 53

While we do not deny our sympathy for this distressed bank, at the same
time, the Court cannot emotionally close its eyes to overriding
considerations of substantive and procedural law, like respect for
perfected contracts, non-impairment of obligations and sanctions against
forum-shopping, which must be upheld under the rule of law and blind
justice.

This Court cannot just gloss over private respondent's submission that,
while the subject properties may currently command a much higher
price, it is equally true that at the time of the transaction in 1987, the
price agreed upon of P5.5 million was reasonable, considering that the
Bank acquired these properties at a foreclosure sale for no more than
P3.5 million 54 . That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own
advantage, to enable it to escape its binding obligation and to reap the
benefits of the increase in land values. To rule in favor of the Bank
simply because the property in question has algebraically accelerated in
price during the long period of litigation is to reward lawlessness and
delays in the fulfillment of binding contracts. Certainly, the Court cannot
stamp its imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and

Resolution, the Court hereby DENIES the petition. The assailed Decision
is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging
in forum-shopping and WARNED that a repetition of the same or similar
acts will be dealt with more severely. Costs against petitioners.

G.R. No. L-21146 September 20, 1965
RURAL BANK OF LUCENA, INC., petitioner,
vs.
HON. FRANCISCO ARCA, as Judge of the Court of First Instance
of Manila, Branch 1, and CENTRAL BANK OF THE
PHILIPPINES, respondents.
Norberto J. Quisumbing for petitioner.
Nat. M. Balboa, F. E. Evangelista and Solicitor General for respondents.
REYES, J.B.L., J.:
The Rural Bank of Lucena, Inc., a banking corporation organized under
Republic Act No. 720, instituted, on June 22, 1961, in the Court of First
Instance of Manila (Civil Case No. 47345) an action to collect damages
and to enjoin the Central Bank from enforcing Resolution No. 928 of its
Monetary Board, finding that the Rural Bank of Lucena (Lucena for
short), through its officers, directors, and employees, had committed
acts substantially prejudicial to the Government, depositors, and
creditors, and directing Lucena to reorganize its board of directors; to
refrain from granting or renewing loans, or accept new deposits, and not
to issue drafts or make disbursements without the approval of the
supervising Central Bank examiners, and threatening Lucena that its
management would be taken over if the latter should fail to comply with
the resolution. After issue joined and trial of the case, and while the
litigation was still undecided by the Court of First Instance, the Monetary
Board, having been informed that the Director of its Department of Rural
Banks recommended the liquidation of the Rural Bank of Lucena,
adopted on February 2, 1962 its Resolution No. 122 (Petition, Annex "C")
—
To request the Solicitor General, pursuant to Section 29 of
Republic Act No. 265, to file a petition in the proper courts for
the liquidation of the affairs of the Rural Bank of Lucena, Inc.
Notice was given by Central Bank officials, on February 10, 1962 that the
Lucena bank was temporarily closed pending final decision of the Court,
and that business be transacted with Central Bank representatives only.
Two days later (February 12, 1962), the Lucena bank filed suit in the
Court of First Instance of Quezon (Tayabas) annual Resolution 122 of the
Monetary Board (Case No. 6471) and enjoin its enforcement; and on
February 14 the court issued ex parte a writ of preliminary injunction to
such effect.
On the same day, the Court of First Instance of Manila, per Judge, now
Court of Appeals Justice, Magno Gatmaitan of Branch XIV, decided Case
No. 47345, enjoining enforcement of Resolution No. 928 of the Monetary
Board, for having been issued without the prior hearing prescribed by
section 10 of the Rural Bank Act, and ordering the Central Bank to pay
P5,000.00 damages and costs. The Central Bank appealed.
Upon the other hand, the Court of First Instance of Quezon Province, in
its Case No. 6741, on February, 24, 1962, dissolved its preliminary
injunction against the enforcement of Resolution 122 of the Monetary
Board. Other than filing a motion for reconsideration (ultimately denied
on January 9, 1963) the Lucena bank took no other steps to prosecute
the case it had filed.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the
Central Bank, as liquidator, petitioned the Court of First Instance of
Manila for assistance in the liquidation of the Lucena bank (Civil Case No.
50019). Upon motion, and after hearing the parties, Judge Arca issued
on interlocutory order on March 28, 1963, the dispositive portion of
which is to the following effect (Petition, Annex "D"):
The Rural Bank of Lucena thru its duly authorized officers or
representatives, is hereby ordered to turn over to the Central
Bank, thru its duly authorized representative, within a period
60
of five (5) days from receipt of copy of this order, the physical
possession of all of said Rural Bank of Lucena's assets,
properties and papers. Should the Rural Bank of Lucena or its
officers fail to comply with the above order within the period
indicated herein, the Central Bank, thru its authorized
representatives, is hereby authorized to take actual and
physical possession of all said assets, properties and papers of
the Rural Bank of Lucena, duly inventoried in the presence of
the Provincial Fiscal, the Provincial Commander, the Provincial
Treasurer, and the Provincial Auditor of Quezon province, or
their duly authorized representatives.
The Rural Bank of Lucena resorted to this Court on certiorari, claiming
that Judge Arca gravely abused his discretion in issuing the above order,
in that —
(a) it interferes with the immediately executory judgment of
Judge Gatmaitan in Case No. 47345 of the Court of First
Instance of Manila;
(b) Section 29 of the Central Bank Act (R.A. 265) does not
apply;
(c) there was no prior valid take over of assets nor due
hearing of the liquidated Bank;
(d) Judge Gatmaitan's decision constitutes a judicial review of
the Monetary Board's action that cannot be nullified by the
challenged order of Judge Area; and
(e) the turn over should not be ordered before trial on the
merits.1awphîl.nèt
This Court issued a temporary restraining order until April 25, 1963, but
the same was not renewed when it expired.
We see no irreconcilable conflict between section 10 (as amended) of
Republic Act No. 720 (Rural Banks Act) and section 29 of Republic Act
No. 265 (Central Bank Act). The former provides in substance as follows:
The director of the Department of the Central Bank
designated by the Monetary Board to supervise Rural Banks ...
upon proof that the Rural Bank or its board of directors or
officers are conducting and managing the affairs of the bank
in a manner contrary to laws, orders, instructions, rules and
regulations promulgated by the Monetary Board or in any
manner substantially prejudicial to the interests of the
government, depositors or creditors, to take over the
management of such bank when specifically authorized to do
so by the Monetary Board after due hearing until a new board
of directors and officers are elected and qualified. ...
It is easily seen that what this section authorized is the take over of the
management by the Central Bank, until the governing body of the
offending Rural Bank is recognized with a view to assuring compliance by
it with the laws and regulations.
Upon the other hand, section 29 6f the Central Bank Act (R. A. 265) has
in view a much more drastic step, the liquidation of a rural bank by
taking over its assets and converting them into money to pay off its
creditors. Said section prescribes:
SEC. 29. Proceedings upon insolvency. — Whenever, upon
examination by the Superintendent or his examiners or agents
into the condition of any banking institution, it shall be
disclosed that the condition of the same is one of insolvency,
or that its continuance in business would involve probable loss
to its depositors or creditors, it shall be the duty of the
Superintendent forthwith, in writing, to inform the Monetary
Board of the facts, and the Board, upon finding the statement
of the Superintendent to be true, shall forthwith forbid the
institution to do business in the Philippines and shall take
charge of its assets and proceeds according to law.

The Monetary Board shall thereupon determine within thirty
days whether the institution may be reorganized or otherwise
placed in such a condition so that it may be permitted to
resume business with safety to its creditors and shall prescribe
the conditions under which such resumption of business shall
take place. In such case the expenses and fee in the
administration of the institution shall be determined by the
Board and shall be paid to the Central Bank out of the assets
of such banking institution.
At any time within ten days after the Monetary Board has
taken charge of the assets of any banking institution, such
institution may apply to the Court of First Instance for an
order requiring the Monetary Board to show cause why it
should not be enjoined from continuing such charge of its
assets, and the court may direct the Board to refrain from
further proceedings and to surrender charge of its assets.
If the Monetary Board shall determine that the banking
institution cannot resume business with safety to its creditors,
it shall, by the Solicitor General, file a petition in the Court of
First Instance reciting the proceedings which have been taken
and praying the assistance and supervision of the court in the
liquidation of the affairs of the same. The Superintendent shall
thereafter, upon order of the Monetary Board and under the
supervision of the court and with all convenient speed,
convert the assets of the banking institution to money.
Considering that section 27 of the Rural Banks law (R.A. No. 720)
expressly declares that —
The provisions of Republic Acts numbered 265 and 337, in so
far as applicable and not in conflict with any provision of this
Act, are hereby made a part of this Act.
we find no room for questioning the applicability of section 29 of
Republic Act No. 265 (Central Bank Act) to rural banks organized under
Republic Act 720, whenever the Monetary Board should find that the
rural bank affected is insolvent, or that its continuance in business would
involve probable loss to its depositors or creditors, and that it cannot
resume business with safety.
It follows that on the assumption that under section 10 of the Rural
Banks Act the Monetary Board may not take over the management of a
rural bank without giving the latter a hearing, i.e., an opportunity to
rebut the charge that it has contravened applicable laws, rules and
regulations to the substantial prejudice of the government, its depositors
and creditors, such a previous hearing is nowhere required by section 29
of the Central Bank Law. Manifestly, whether a rural bank's "continuance
in business would involve probable loss" to its clients or creditors and
that it "cannot resume business with safety," is a matter of appreciation
and judgment that the law entrusts primarily to the Monetary Board.
Equally apparent is that if the rural bank affected is in the condition
previously adverted to, every minute of delay in securing its assets from
dissipation inevitably increases the danger to the creditors. For this
reason, the statute has provided for a subsequent judicial review of the
Monetary Board, in lieu of a previous hearing.
In point of fact, the petitioner Rural Bank of Lucena did file a petition
(Annex "G") for judicial review in the Court of First Instance of Quezon
Province, dated February 12, 1962, and challenged the validity of
Resolution No. 122 of the Monetary Board (Case No. 6471) ; but the
Court of First Instance of Quezon dissolved the preliminary injunction
issued in that case and allowed Resolution No. 122 to take effect,
without any steps being taken for a review of such action. This being the
case, and in view of the manifest reluctance the Lucena bank's officials
to comply with the Monetary Board's resolution, the Central Bank had
cause to seek judicial assistance for the discharge of its duties as
liquidator.
The petitioner rural bank seems to take the view that the proceedings
had before Judge Gatmaitan in Case No. 47345, Branch XIV, of the Court
of First Instance of Manila constituted the judicial review required by
section 29 of Republic Act No. 265, the Central Bank Act. Such a stand is
untenable, for the case tried and decided by Judge Gatmaitan concerned
an attempt by the Central Bank to take over management under section
10 of the Rural Banks law (R.A. No. 720) in connection with the
61
Monetary Board's resolution No. 928 of June 16, 1961. Even more
conclusive is the consideration that said action (Case No. 47345) was
filed on June 22, 1961, and could not possibly be a judicial review of the
Resolution No. 122 adopted eight months later, on February 2, 1962. A
review cannot precede the adoption of the resolution being reviewed.
This proposition requires no demonstration.
The narrated events also rebut the contention that the order of Judge
Area, issued on March 28, 1963, in Case No. 50019, constitutes unlawful
interference with the enforcement of Judge Gatmaitan's decision of
February 14, 1962, the issues involved being different in each case. As
heretofore pointed out one involved a take over of management under
section 10 of the Rural Banks Act, and the other a seizure of assets and
liquidation under section 29 of the Central Bank law (R.A. 265).
Nor can the proceedings before Judge Area be deemed judicial review of
the 1962 resolution No. 122 of the Monetary Board, if only because by
law (section 29, R. A. 265) such review must be asked within 10 days
from notice of the resolution of the Board. Between the adoption of
Resolution No. 122 and the challenged order of Judge Arca, more than
one year had elapsed. Hence, the validity of the Monetary Board's
resolution can no longer be litigated before Judge Arca, whose role under
the fourth paragraph of section 29 is confined to assisting and
supervising the liquidation of the Lucena bank.
Whether or not the Central Bank acted with arbitrariness or bad faith in
decreeing that circumstances called for the liquidation of the Lucena
Rural Bank, and should be answerable in damages, should be threshed
out and determined, not by Judge Arca but in Case No. 6471 of the
Court of First Instance of Quezon Province, which was filed within the
10-day period prescribed by the Central Bank law, and which appears to
be still pending, unless the Lucena bank had abandoned such litigation, a
fact that we need not decide at present. Suffice it to say that Judge Arca
had no reason to inquire into the merits of the case before issuing the
disputed order requiring the surrender of the assets and papers of the
Lucena bank, because: (1) neither the statute (sec. 29, R.A. 265) nor the
constitutional requirement of due process demand that the correctness
of the Monetary Board's resolution to stop operation and proceed to the
liquidation of the Lucena Rural Bank should first be adjudged before
making the resolution effective, it being enough that a subsequent
judicial review by provided (section 29, R.A. 265; 12 Am. Jur. 305, sec.
611; Bourjois vs. Chapman, 301 U.S. 183, 81 Law Ed. 1027, 1032;
American Surety Co. vs. Baldwin, 77 Law Ed. 231, 86 ALR 307; Wilson
vs. Standefer, 46 Law Ed. 612); (2) the period for asking such judicial
review had elapsed with excess between the adoption of the Monetary
Board Resolution No. 122 and the filing of the case by the Central Bank
in the Court of First Instance of Manila; (3) the correctness of said
resolution had already been put in issue before the Court of Quezon
Province; (4) because the latter court had refused to stop
implementation of the Resolution of the Monetary Board when it
dissolved its own preliminary injunction; and (5) because the Lucena
Bank had apparently acquiesced in the action taken by the Court of
Quezon Province, since the rural bank had not sought that the action of
the Quezon court be set aside by a higher court.
IN VIEW OF THE FOREGOING, the writ applied for is denied with costs
against the petitioner Lucena Rural Bank, Inc.

G.R. No. L-61689 June 20, 1988
RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R.
BUENVIAJE, petitioners,
vs.
HONORABLE COURT OF APPEALS, CENTRAL BANK OF THE
PHILIPPINES and CONSOLACION ODRA, respondents.
Manuel B. Tomacruz and Rustico Pasilavan for petitioners.
I.B. Regalado, Jr. and Pacifica T. Torres for respondents.
PARAS, J.:
This is a petition for review on certiorari with preliminary mandatory
injunction seeking the reversal of the orders of the Court of Appeals
dated March 19, 1982 and March 24, 1982 and its decision * (HATOL)
promulgated on June 17,1982 in CA-G.R. No. 13944 entitled "Banko
Central ng Pilipinas at Consolacion Odra Laban Kina Rural Bank of Buhi
(Camarines Sur), Inc." and praying for a restraining order or a
preliminary mandatory injunction to restrain respondents from enforcing
aforesaid orders and decision of the respondent Court, and to give due
course to the petitioners' complaint in IR-428, pending before Hon.
Judge Carlos R. Buenviaje of Branch VII, CFI, Camarines Sur.
The decretal portion of the appealed decision reads:
DAHIL DITO, ang utos ng pinasasagot sa Hukom
noong ika-9 ng Marso, 1982, ay isinasang-tabi.
Kapalit nito, isang utos and ipinalabas na nag-uutos
sa pinasasagot sa Hukom na itigil ang anumang
pagpapatuloy o pagdidinig kaugnay sa usaping IR-
428 na pinawawalang saysay din ng Hukumang ito.
SIYANG IPINAG-UUTOS.
The antecedent facts of the case are as follows:
The petitioner Rural Bank of Buhi, Inc. (hereinafter referred to as Buhi) is
a juridical entity existing under the laws of the Philippines. Buhi is a rural
bank that started its operations only on December 26,1975 (Rollo, p. 86).
In 1980, an examination of the books and affairs of Buhi was ordered
conducted by the Rural Banks and Savings and Loan Association
(DRBSLA), Central Bank of the Philippines, which by law, has charge of
the supervision and examination of rural banks and savings and loan
associations in the Philippines. However, said petitioner refused to be
examined and as a result thereof, financial assistance was suspended.
On January 10, 1980, a general examination of the bank's affairs and
operations was conducted and there were found by DRBSLA represented
by herein respondent, Consolacion V. Odra, Director of DRBSLA, among
others, massive irregularities in its operations consisting of loans to
unknown and fictitious borrowers, where the sum of P 1,704,782.00 was
past due and another sum of P1,130,000.00 was also past due in favor
of the Central Bank (Rollo, p. 86). The promissory notes evidencing these
loans were rediscounted with the Central Bank for cash. As a result
thereof, the bank became insolvent and prejudiced its depositors and
creditors.
Respondent, Consolacion V. Odra, submitted a report recommending to
the Monetary Board of the Central Bank the placing of Buhi under
receivership in accordance with Section 29 of Republic Act No. 265, as
amended, the designation of the Director, DRBSLA, as receiver thereof.
On March 28, 1980, the Monetary Board, finding the report to be true,
adopted Resolution No. 583 placing Buhi, petitioner herein, under
receivership and designated respondent, Consolacion V. Odra, as
Receiver, pursuant to the provisions of Section 29 of Republic Act No.
265 as amended (Rollo, p. 111).
62
In a letter dated April 8, 1980, respondent Consolacion V. Odra, as
receiver, implemented and carried out said Monetary Board Resolution
No. 583 by authorizing deputies of the receiver to take control,
possession and charge of Buhi, its assets and liabilities (Rollo, p. 109).
Imelda del Rosario, Manager of herein petitioner Buhi, filed a petition for
injunction with Restraining Order dated April 23, 1980, docketed as
Special Proceedings IR-428 against respondent Consolacion V. Odra and
DRBSLA deputies in the Court of First Instance of Camarines Sur, Branch
VII, Iriga City, entitled Rural Bank of Buhi vs. Central Bank, which
assailed the action of herein respondent Odra in recommending the
receivership over Buhi as a violation of the provisions of Sections 28 and
29 of Republic Act No. 265 as amended, and Section 10 of Republic Act
No. 720 (The Rural Banks Act) and as being ultra vires and done with
grave abuse of discretion and in excess of jurisdiction (Rollo, p. 120).
Respondents filed their motion to dismiss dated May 27, 1980 alleging
that the petition did not allege a cause of action and is not sufficient in
form and substance and that it was filed in violation of Section 29,
Republic Act No. 265 as amended by Presidential Decree No. 1007
(Rollo, p. 36).
Petitioners, through their counsel, filed an opposition to the motion to
dismiss dated June 17, 1980 averring that the petition alleged a valid
cause of action and that respondents have violated the due process
clause of the Constitution (Rollo, p. 49).
Later, respondents filed a reply to the opposition dated July 1, 1980,
claiming that the petition is not proper; that Imelda del Rosario is not the
proper representative of the bank; that the petition failed to state a
cause of action; and, that the provisions of Section 29 of Republic Act
No. 265 had been faithfully observed (Rollo, p. 57).
On August 22, 1980, the Central Bank Monetary Board issued a
Resolution No. 1514 ordering the liquidation of the Rural Bank
of Buhi (Rollo, p. 108).
On September 1, 1981, the Office of the Solicitor General, in accordance
with Republic Act No. 265, Section 29, filed in the same Court of First
Instance of Camarines Sur, Branch VII, a petition for Assistance in the
Liquidation of Buhi, which petition was docketed as SP-IR-553, pursuant
to the Monetary Board Resolution No. 1514 (Rollo, pp. 89; 264).
Meanwhile, respondent Central Bank filed on September 15, 1981, in
Civil Case No. IR-428 a Supplemental Motion To Dismiss on the ground
that the receivership of Buhi, in view of the issuance of the Monetary
Board Resolution No. 1514 had completely become moot and academic
(Rollo, p. 68) and the fact that Case SP-IR-553 for the liquidation
of Buhi was already pending with the same Court (Rollo, p. 69).
On October 16, 1981, petitioners herein filed their amended complaint in
Civil Case No. IR-428 alleging that the issuance of Monetary Board
Resolution No. 583 was plainly arbitrary and in bad faith under
aforequoted Section 29 of Republic Act No. 265 as amended, among
others (Rollo, p. 28). On the same day, petitioner herein filed a rejoinder
to its opposition to the motion to dismiss (Rollo, p. 145).
On March 9,1982, herein petitioner Judge Buenviaje, issued an order
denying the respondents' motion to dismiss, supplemental motion to
dismiss and granting a temporary restraining order enjoining
respondents from further managing and administering the Rural Bank of
Buhi and to deliver the possession and control thereof to the petitioner
Bank under the same conditions and with the same financial status as
when the same was taken over by herein respondents (defendants) on
April 16, 1980 and further enjoining petitioner to post a bond in the
amount of three hundred thousand pesos (P300,000.00) (Rollo, p. 72).
The dispositive portion of said decision reads:
WHEREFORE, premises considered, the motion to
dismiss and supplemental motion to dismiss, in the
light of petitioners' opposition, for want of sufficient
merit is denied. Respondents are hereby directed

to file their answer within ten (10) days from
receipt of a copy of this order. (Rollo, p. 4).
On March 11, 1982, petitioner Buhi through counsel, conformably with
the above-mentioned order, filed a Motion to Admit Bond in the amount
of P300,220.00 (Rollo, pp. 78-80).
On March 15,1982, herein petitioner Judge issued the order admitting
the bond of P300,220.00 filed by the petitioner, and directing the
respondents to surrender the possession of the Rural Bank of Buhi,
together with all its equipments, accessories, etc. to the petitioners
(Rollo, p. 6).
Consequently, on March 16, 1982, herein petitioner Judge issued the writ
of execution directing the Acting Provincial Sheriff of Camarines Sur to
implement the Court's order of March 9, 1982 (Rollo, p. 268). Complying
with the said order of the Court, the Deputy Provincial Sheriff went to
the Buhi premises to implement the writ of execution but the vault of the
petitioner bank was locked and no inventory was made, as evidenced by
the Sheriffs Report (Rollo, pp. 83-84). Thus, the petitioner herein filed
with the Court an "Urgent Ex-Parte Motion to Allow Sheriff Calope to
Force Open Bank Vault" on the same day (Rollo, p. 268). Accordingly, on
March 17, 1982, herein petitioner Judge granted the aforesaid Ex-Parte
Motion to Force Open the Bank Vault (Rollo, p. 269).
On March 18, 1982, counsel for petitioner filed another "Urgent Ex-Parte
Motion to Order Manager of City Trust to Allow Petitioner to Withdraw
Rural Bank Deposits" while a separate "Urgent Ex-Parte Motion to Order
Manager of Metrobank to Release Deposits of Petitioners" was filed on
the same date. The motion was granted by the Court in an order
directing the Manager of Metro Bank-Naga City (Rollo, p. 269) to comply
as prayed for.
In view thereof, herein respondents filed in the Court of Appeals a
petition for certiorari and prohibition with preliminary injunction docketed
as CA-G.R. No. 13944 against herein petitioners, seeking to set aside the
restraining order and reiterating therein that petitioner Buhi's complaint
in the lower court be dismissed (Rollo, p. 270).
On March 19, 1982, the Court of Appeals issued a Resolution
(KAPASIYAHAN) in tagalog, restraining the Hon. Judge Carlos R.
Buenviaje, from enforcing his order of March 9,1982 and suspending
further proceedings in Sp. Proc. No. IR-428 pending before him while
giving the Central Bank counsel, Atty. Ricardo Quintos, authority to carry
out personally said orders and directing the "Punong Kawani" of the
Court of Appeals to send telegrams to the Office of the President and the
Supreme Court (Rollo, p. 168).
Herein petitioners did not comply with the Court of Appeals' order of
March 19, 1982, but filed instead on March 21, 1982 a motion for
reconsideration of said order of the Court of Appeals, claiming that the
lower court's order of March 9, 1982 referred only to the denial of
therein respondents' motion to dismiss and supplemental motion to
dismiss and that the return of Buhi to the petitioners was already an
accomplished fact. The motion was denied by the respondent court in a
resolution dated June 1, 1982 (Rollo, p. 301).
In view of petitioners' refusal to obey the Court of Appeals' Order of
March 19, 1982, herein respondents filed with the Court of Appeals a
Motion to Cite Petitioners in Contempt, dated April 22, 1982 (Rollo, p.
174).
The Court of Appeals issued on May 24, 1982 an order requiring herein
petitioner Rural Bank of Buhi, Inc., through its then Acting Manager,
Imelda del Rosario and herein petitioner Judge Carlos Buenviaje, as well
as Manuel Genova and Rodolfo Sosa, to show cause within ten (10) days
from notice why they should not be held in contempt of court and further
directing the Ministry of National Defense or its representative to cause
the return of possession and management of the Rural Bank to the
respondents Central Bank and Consolacion Odra (Rollo, p. 180).
On June 9, 1982, petitioners filed their objection to respondents' motion
for contempt dated June 5, 1982 claiming that the properties, subject of
the order, had already been returned to the herein petitioners who are
the lawful owners thereof and that the returning could no longer be
undone (Rollo, p. 181).
63
Later, petitioners filed another motion dated June 17, 1982 for the
reconsideration of the resolution of June 1, 1982 of the Court of Appeals
alleging that the same contravened and departed from the rulings of the
Supreme Court that consummated acts or acts already done could no
longer be the subject of mandatory injunction and that the respondent
Court of Appeals had no jurisdiction to issue the order unless it was in
aid of its appellate jurisdiction, claiming that the case (CA-G.R. No.
13944) did not come to it on appeal (Rollo, p. 302).
As aforestated, on June 17, 1982, respondent Court of Appeals rendered
its decision (HATOL) setting aside the lower court's restraining order
dated March 9,1982 and ordering the dismissal of herein petitioners'
amended complaint in Civil Case No. IR-428 (Rollo, p. 186).
On July 9, 1982, petitioners (respondents in CA-G.R. No. 13944) filed a
Motion for Reconsideration of the Decision dated June 17, 1982 insofar
as the complaint with the lower court (Civil Case No. IR-428 was ordered
dismissed (Rollo, p. 305).
On August 23, 1982, the respondent Court of Appeals issued its
Resolution denying for lack of merit, herein petitioners' motion for
reconsideration of the resolution issued by the respondent Court of
Appeals on June 1, 1982 and set on August 31, 1982 the hearing of the
motion to cite the respondents in CA-G.R. No. SP-13944 (herein
petitioner) for contempt (Rollo, p. 193).
At said hearing, counsel for Rural Bank of Buhi agreed and promised in
open court to restore and return to the Central Bank the possession and
control of the Bank within three (3) days from August 31, 1982.
However on September 3,1982, Rosalia Guevara, Manager thereof,
vigorously and adamantly refused to surrender the premises unless she
received a written order from the Court.
In a subsequent hearing of the contempt incident, the Court of Appeals
issued its Order dated October 13,1982, but Rosalia Guevara still refused
to obey, whereupon she was placed under arrest and the Court of
Appeals ordered her to be detained until she decided to obey the Court's
Order (Rollo, pp. 273-274).
Earlier, on September 14, 1982 petitioners had filed this petition even
while a motion for reconsideration of the decision of June 17,1982 was
still pending consideration in the Court of Appeals.
In the resolution of October 20, 1982, the Second Division of this Court
without giving due course to the petition required respondents to
COMMENT (Rollo, p. 225).
Counsel for respondents manifested (Rollo, p. 226) that they could not
file the required comment because they were not given a copy of the
petition. Meanwhile, they filed an urgent motion dated October 28, 1982
with the Court of Appeals to place the bank through its representatives in
possession of the Rural Bank of Buhi (Camarines Sur), Inc. (Rollo, p.
237).
On December 9, 1982, petitioners filed a Supplemental Petition with
urgent motion for the issuance of a restraining order dated December 2,
1982 praying that the restraining order be issued against respondent
court (Rollo, p. 229).
In the resolution of December 15,1982, the Court resolved to require
petitioners to furnish the respondents with a copy of the petition and to
require the respondents to comment on both the original and the
supplemental petitions (Rollo, p. 243).
In a resolution of February 21, 1983, the Court NOTED Rosalia V.
Guevara's letter dated February 4, 1983 (Rollo, p. 252) addressed to
Hon. Chief Justice Enrique M. Fernando, requesting that she be allowed
to file a petition for the issuance of a writ of habeas corpus (Rollo, p.
256).
At the hearing of the said petition on February 23, 1983 where the
counsel of both parties appeared, this Court noted the Return of the Writ
of Habeas Corpus as well as the release of petitioner Rosalia V. Guevara

from detention by the National Bureau of Investigation. After hearing
aforesaid counsel and petitioner herself, and it appearing that the latter
had resigned since January 18,1983 as Manager of the Rural Bank of
Buhi, Inc. and that the Central Bank might avail of more than adequate
legal measures to take over the management, possession and control of
the said bank (and not through contempt proceedings and detention and
confinement of petitioner), with Assistant Solicitor General Andin
manifesting that respondents were not insisting on the continued
detention of petitioner, the Court Resolved to SET the petitioner at
liberty and to consider the contempt incident closed (Rollo, p. 339).
On April 11, 1983, respondents filed their comment on the original and
supplemental petitions.
Meanwhile, the Court of Appeals, acting on respondents' urgent motion
filed on October 28, 1982 ordered on April 13, 1983 the return to the
petitioners (herein respondents) or their duly authorized representatives
of the possession, management and control of subject Rural Bank (Rollo,
p. 319), together with its properties.
On April 28, 1983, petitioner filed an urgent motion: (1) to give due
course to the petition and (2) for immediate issuance of a Restraining
Order against the respondent court to prevent it from enforcing its
aforesaid resolution dated April 13, 1983 and from further proceeding in
AC-G.R. No. 13944-SP (Rollo, p. 315).
On May 16, 1983, this Court resolved to deny the petition for lack of
merit (Rollo, p. 321). On July 25, 1983, petitioners filed their verified
Motion for Reconsideration (Rollo, p. 337) praying that the HATOL dated
June 17, 1982 of the Court of Appeals be set aside as null and void and
that Special Proceedings No. IR-428 of CFI-Camarines Sur, Iriga City,
Branch VII, be ordered remanded to the RTC of Camarines Sur, Iriga
City, for further proceedings.
A Motion for Early Resolution was filed by herein petitioners on March
12,1984 (Rollo, p. 348).
Petitioners raised the following legal issues in their motion for
reconsideration:
I. UNDER SEC. 29, R.A. 265, AS AMENDED, MAY THE MONETARY
BOARD (MB) OF THE CENTRAL BANK (CB) PLACE A RURAL BANK UNDER
RECEIVERSHIP WITHOUT PRIOR NOTICE TO SAID RURAL BANK TO
ENABLE IT TO BE HEARD ON THE GROUND RELIED UPON FOR SUCH
RECEIVERSHIP?
II. UNDER THE SAME SECTION OF SAID LAW, WHERE THE MONETARY
BOARD (MB) OF THE CENTRAL BANK (CB) HAS PLACED A RURAL BANK
UNDER RECEIVERSHIP, IS SUCH ACTION OF THE MONETARY BOARD
(MB) SUBJECT TO JUDICIAL REVIEW? IF SO, WHICH COURT MAY
EXERCISE SUCH POWER AND WHEN MAY IT EXERCISE THE SAME?
III. UNDER THE SAID SECTION OF THE LAW, SUPPOSE A CIVIL CASE IS
INSTITUTED SEEKING ANNULMENT OF THE RECEIVERSHIP ON THE
GROUND OF ARBITRARINESS AND BAD FAITH ON THE PART OF THE
MONETARY BOARD (MB), MAY SUCH CASE BE DISMISSED BY THE IAC
(THEN CA) ON THE GROUND OF INSUFFICIENCY OF EVIDENCE EVEN IF
THE TRIAL COURT HAS NOT HAD A CHANCE YET TO RECEIVE
EVIDENCE AND THE PARTIES HAVE NOT YET PRESENTED EVIDENCE
EITHER IN THE TRIAL COURT OR IN SAID APPELLATE COURT? (Rollo,
pp. 330-331).
I. Petitioner Rural Bank's position is to the effect that due process was
not observed by the Monetary Board before said bank was placed under
receivership. Said Rural Bank claimed that it was not given the chance to
deny and disprove such claim of insolvency and/or any other ground
which the Monetary Board used in justification of its action.
Relative thereto, the provision of Republic Act No. 265 on the
proceedings upon insolvency reads:
SEC. 29. Proceedings upon insolvency.—
Whenever, upon examination by the head of the
appropriate supervising and examining department
or his examiners or agents into the condition of any
64
banking institution, it shall be disclosed that the
condition of the same is one of insolvency, or that
its continuance in business would involve probable
loss to its depositors or creditors, it shall be the
duty of the department head concerned forthwith,
in writing, to inform the Monetary Board of the
facts, and the Board may, upon finding the
statements of the department head to be true,
forbid the institution to do business in the
Philippines and shall designate an official of the
Central Bank, or a person of recognized
competence in banking, as receiver to immediately
take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the
assets and administer the same for the benefit of
its creditors, exercising all the powers necessary for
these purposes including, but not limited to,
bringing suits and foreclosing mortgages in the
name of the banking institution.
The Monetary Board shall thereupon determine
within sixty days whether the institution may be
recognized or otherwise placed in such a condition
so that it may be permitted to resume business
with safety to its depositors and creditors and the
general public and shall prescribe the conditions
under which such redemption of business shall take
place as the time for fulfillment of such conditions.
In such case, the expenses and fees in the
collection and administration of the assets of the
institution shall be determined by the Board and
shall be paid to the Central Bank out of the assets
of such banking institution.
If the Monetary Board shall determine and confirm
within the said period that the banking institution is
insolvent or cannot resume business with safety to
its depositors, creditors and the general public, it
shall, if the public interest requires, order its
liquidation, indicate the manner of its liquidation
and approve a liquidation plan. The Central Bank
shall, by the Solicitor General, file a petition in the
Court of First Instance reciting the proceedings
which have been taken and praying the assistance
of the court in the liquidation of the banking
institution. The Court shall have jurisdiction in the
same proceedings to adjudicate disputed claims
against the bank and enforce individual liabilities of
the stockholders and do all that is necessary to
preserve the assets of the banking institution and
to implement the liquidation plan approved by the
Monetary Board. The Monetary Board shall
designate an official of the Central Bank or a
person of recognized competence in banking, as
liquidator who shall take over the functions of the
receiver previously appointed by the Monetary
Board under this Section. The liquidator shall, with
all convenient speed, convert the assets of the
banking institution to money or sell, assign or
otherwise dispose of the same to creditors and
other parties for the purpose of paying the debts of
such bank and he may, in the name of the banking
institution, institute such actions as may be
necessary in the appropriate court to collect and
recover accounts and assets of the banking
institution.
The provisions of any law to the contrary
notwithstanding the actions of the Monetary Board
under this Section and the second paragraph of
Section 34 of this Act shall be final and executory,
and can be set aside by the court only if there is
convincing proof that the action is plainly arbitrary
and made in bad faith. No restraining order or
injunction shall be issued by the court enjoining the
Central Bank from implementing its actions under
this Section and the second paragraph of Section
34 of this Act, unless there is convincing proof that
the action of the Monetary Board is plainly arbitrary
and made in bad faith and the petitioner or plaintiff

files with the clerk or judge of the court in which
the action is pending a bond executed in favor of
the Central Bank, in an amount to be fixed by the
court. The restraining order or injunction shall be
refused or, if granted, shall be dissolved upon filing
by the Central Bank of a bond, which shall be in
the form of cash or Central Bank cashier's check, in
an amount twice the amount of the bond of the
petitioner, or plaintiff conditioned that it will pay
the damages which the petitioner or plaintiff may
suffer by the refusal or the dissolution of the
injunction. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable and
not inconsistent with the provisions of this Section
shall govern the issuance and dissolution of the
restraining order or injunction contemplated in this
Section.
Insolvency, under this Act, shall be understood to
mean the inability of a banking institution to pay its
liabilities as they fall due in the usual and ordinary
course of business: Provided, however, that this
shall not include the inability to pay of an otherwise
non-insolvent bank caused by extraordinary
demands induced by financial panic commonly
evidenced by a run on the banks in the banking
community.
The appointment of a conservator under Section
28-A of this Act or the appointment of receiver
under this Section shall be vested exclusively with
the Monetary Board, the provision of any law,
general or special, to the contrary not
withstanding.
It will be observed from the foregoing provision of law, that there is no
requirement whether express or implied, that a hearing be first
conducted before a banking institution may be placed under receivership.
On the contrary, the law is explicit as to the conditions prerequisite to
the action of the Monetary Board to forbid the institution to do business
in the Philippines and to appoint a receiver to immediately take charge of
the bank's assets and liabilities. They are: (a) an examination made by
the examining department of the Central Bank; (b) report by said
department to the Monetary Board; and (c) prima facie showing that the
bank is in a condition of insolvency or so situated that its continuance in
business would involve probable loss to its depositors or creditors.
Supportive of this theory is the ruling of this Court, which established the
authority of the Central Bank under the foregoing circumstances, which
reads:
As will be noted, whenever it shall appear prima
facie that a banking institution is in "a condition of
insolvency" or so situated "that its continuance in
business would involved probable loss to its
depositors or creditors," the Monetary Board has
authority:
First, to forbid the institution to do business and
appoint a receiver therefor; and
Second, to determine, within 60 days, whether or
not:
1) the institution may be reorganized and
rehabilitated to such an extent as to be
permitted to resume business with safety
to depositors, creditors and the general
public; or
2) it is indeed insolvent or cannot resume
business with safety to depositors,
creditors and the general public, and public
interest requires that it be liquidated.
65
In this latter case (i.e., the bank can no longer resume business with
safety to depositors, creditors and the public, etc.) its liquidation will be
ordered and a liquidator appointed by the Monetary Board. The Central
Bank shall thereafter file a petition in the Regional Trial Court praying for
the Court's assistance in the liquidation of the bank." ... (Salud vs.
Central Bank, 143 SCRA 590 [1986]).
Petitioner further argues, that there is also that constitutional guarantee
that no property shall be taken without due process of law, so that
Section 29, R.A. 265, as amended, could not have intended to disregard
and do away with such constitutional requirement when it conferred
upon the Monetary Board the power to place Rural Banks under
receivership (Rollo, p. 333).
The contention is without merit. It has long been established and
recognized in this jurisdiction that the closure and liquidation of a bank
may be considered as an exercise of police power. Such exercise may,
however, be subject to judicial inquiry and could be set aside if found to
be capricious, discriminatory, whimsical, arbitrary, unjust or a denial of
the due process and equal protection clauses of the Constitution (Central
Bank vs. Court of Appeals, 106 SCRA 155 [1981]).
The evident implication of the law, therefore, is that the appointment of
a receiver may be made by the Monetary Board without notice and
hearing but its action is subject to judicial inquiry to insure the protection
of the banking institution. Stated otherwise, due process does not
necessarily require a prior hearing; a hearing or an opportunity to be
heard may be subsequent to the closure. One can just imagine the dire
consequences of a prior hearing: bank runs would be the order of the
day, resulting in panic and hysteria. In the process, fortunes may be
wiped out, and disillusionment will run the gamut of the entire banking
community.
In Mendiola vs. Court of Appeals, (106 SCRA 130), the Supreme Court
held:
The pivotal issue raised by petitioner is whether or
not the appointment of a receiver by the Court of
First Instance on January 14, 1969 was in order.
Respondent Court correctly stated that the
appointment of a receiver pendente lite is a matter
principally addressed to and resting largely on the
sound discretion of the court to which the
application is made. This Tribunal has so held in a
number of cases. However, receivership being
admittedly a harsh remedy, it should be granted
with extreme caution. Sound reasons for
receivership must appear of record, and there
should be a clear showing of a necessity therefor.
Before granting the remedy, the court is advised to
consider the consequence or effects thereof in
order to avoid irreparable injustice or injury to
others who are entitled to as much consideration
as those seeking it.
xxx xxx xxx
This is not to say that a hearing is an indispensable
requirement for the appointment of a receiver. As
petitioner correctly contends in his first assignment
of error, courts may appoint receivers without prior
presentation of evidence and solely on the basis of
the averments of the pleadings. Rule 59 of the
Revised Rules of Court allows the appointment of a
receiver upon an ex parte application.
There is no question that the action of the Monetary Board in this regard
may be subject to judicial review. Thus, it has been held that the courts
may interfere with the Central Bank's exercise of discretion in
determining whether or not a distressed bank shall be supported or
liquidated. Discretion has its limits and has never been held to include
arbitrariness, discrimination or bad faith (Ramos vs. Central Bank of the
Philippines, 41 SCRA 567 [1971]).
 66

It has likewise been held that resolutions of the Monetary Board under
Section 29 of the Central Bank Act, such as: forbidding bank institutions
to do business on account of a "condition of insolvency" or because its
continuance in business would involve probable loss to depositors or
creditors; or appointing a receiver to take charge of the bank's assets
and liabilities, or determining whether the bank may be rehabilitated or
should be liquidated and appointing a liquidator for that purpose, are
under the law "final and executory" and may be set aside only on one
ground, that is "if there is convincing proof that the action is plainly
arbitrary and made in bad faith" (Salud vs. Central Bank, supra).

There is no dispute that under the above-quoted Section 29 of the

Central Bank Act, the Regional Trial Court has jurisdiction to adjudicate
the question of whether or not the action of the Monetary Board
directing the dissolution of the subject Rural Bank is attended by
arbitrariness and bad faith. Such position has been sustained by this
Court in Salud vs. Central Bank of the Philippines (supra).

In the same case, the Court ruled further that a banking institution's
claim that a resolution of the Monetary Board under Section 29 of the
Central Bank Act should be set aside as plainly arbitrary and made in bad
faith, may be asserted as an affirmative defense (Sections 1 and 4[b],
Rule 6, Rules of Court) or a counterclaim (Section 6, Rule 6; Section 2,
Rule 72 of the Rules of Court) in the proceedings for assistance in
liquidation or as a cause of action in a separate and distinct action where
the latter was filed ahead of the petition for assistance in liquidation
(ibid; Central Bank vs. Court of Appeals, 106 SCRA 143 [1981]).

III. It will be noted that in the issuance of the Order of the Court of First
Instance of Camarines Sur, Branch VII, Iriga City, dated March 9, 1982
(Rollo, pp. 72-77), there was no trial on the merits. Based on the
pleadings filed, the Court merely acted on the Central Bank's Motion to
Dismiss and Supplemental Motion to Dismiss, denying both for lack of
sufficient merit. Evidently, the trial court merely acted on an incident and
has not as yet inquired, as mandated by Section 29 of the Central Bank
Act, into the merits of the claim that the Monetary Board's action is
plainly arbitrary and made in bad faith. It has not appreciated certain
facts which would render the remedy of liquidation proper and
rehabilitation improper, involving as it does an examination of the
probative value of the evidence presented by the parties properly
belonging to the trial court and not properly cognizable on appeal
(Central Bank vs. Court of Appeals, supra, p. 156).

Still further, without a hearing held for both parties to substantiate their
allegations in their respective pleadings, there is lacking that "convincing
proof" prerequisite to justify the temporary restraining order (mandatory
injunction) issued by the trial court in its Order of March 9, 1982.

PREMISES CONSIDERED, the decision of the Court of Appeals is

MODIFIED; We hereby order the remand of this case to the Regional
Trial Court for further proceedings, but We LIFT the temporary
restraining order issued by the trial court in its Order dated March 9,
1982.

SO ORDERED.